Stephen Guise has a B.S.B.A. in Finance. Therefore, all of his financial advice shall be considered perfect.
To transform your financial situation from poor to great, accomplish these six objectives:
- Keep track of your money and allocate it wisely
- Turn the tables on credit card companies to make money off of them
- Understand and choose the proper health insurance
- Shop smarter to save money every day
- Gain side income with eBay (which also simplifies your life)
- Invest your money the smart way with ETFs
Let’s go through these in detail, one by one, and transform your finances!
1. Start A Budget At Mint.com (free)
If you don’t know where your money is going, then you can’t control it. Budgeting is the best way to see how you spend money, and so it empowers you to control your spending.
I have no affiliation with Mint.com, I’m just a satisfied user. Mint is a free budgeting website that tracks your finances automatically: bank accounts, credit card accounts, investment accounts, loans, and cash transactions if you want to enter them manually. Are you clueless about what your financial picture really looks like? You can find out in minutes after you fill in your information.
Budgeting is difficult if you have to save all of your receipts (in my opinion), but Mint tracks every purchase you’ve made on your credit and debit cards and automatically categorizes them for you. Occasionally, the software gets the category wrong, but it’s an easy fix to set a “rule” so Mint will categorize it properly the next time.
If you’re wondering about how to get out of debt, it starts here. Set aside money every month to pay toward your debts. When you budget, you’ll be able to see where excess money goes, and you’ll be informed to make smarter choices. If you don’t have enough money coming in, eBay some items you don’t need (covered in step 5).
You can set “goals” in mint to save up for an emergency fund, a travel fund, a retirement fund, or a “pay off my debt” fund, among others. It’s a smart way to save up for things that you might otherwise neglect.
Budgeting isn’t boring like the stereotype suggests. It’s fun to save up until the end of the month and splurge on something guilt-free. It’s a non-optional way to start your financial transformation.
2. Use Credit Cards Correctly
It’s becoming fashionable to not own a credit card; it’s easy to see why. if you use credit cards the wrong way, you’ll pay exorbitant interest fees of up to 20% and rack up debt like Mike Tyson racked up knockouts in his prime (later, he racked up debt too). But if you use credit cards the right way, you’ll be given hundreds of dollars worth of bonuses.
The reason VISA is worth 158 billion dollars right now is because people are very generous and pay them 15% + interest. Me? I only pay $95 in annual fees on one card, but I’ve received…
- More than $2,000 in Amazon credit, which is essentially cash to me because I buy everything on Amazon.
- More than 100,000 points on British Airways, which I used for six free nights in a 4 star hotel in Rome with a friend.
- More than 100,000 points for my Marriott credit card.
I have the Amazon credit card because I shop on Amazon often, but I’ll occasionally snag other credit card offers too good to pass up. Credit card promotions happen all the time. My credit card signup bonuses have given me 100,000 Avios points (via British Airways), $500 in Amazon gift cards, and 70,000 Marriott points.
All of my purchases are filtered through my credit cards, and I pay them off in full every month. This is the only way to responsibly use a credit card. If you can’t resist spending money you don’t have, then you shouldn’t own a credit card, but if you can, leverage the perks to make money off of VISA and their competitors.
My credit cards cost me almost nothing, build my credit, and give me huge bonuses worth hundreds of dollars. What’s not to love?
Never use a credit card as your emergency fund. Having to pay 20% interest isn’t a good backup plan. Instead, set aside income in your budget from step one toward a cash emergency fund.
3. Get Proper Health Insurance
This one is important to get right, and many people don’t. I buy my own insurance, but if yours is through work, they should give you at least a few options. Health insurance is now required in the USA with an annual penalty of $95 if you don’t have it. But really, everyone should have at least emergency health insurance. That said, I do not appreciate the non-transparent practices of insurance companies and medical facilities.
Co-pay: For doctor’s visits and drugs, this is a flat fee you’ll pay – usually 15-50 dollars.
Deductible: The money you’ll pay before your insurance “kicks in.”
Co-insurance: The money you’ll pay after your deductible. It’s usually a percentage of the cost. An 80/20 plan has you pay 20% of the costs after your deductible is met.
When it comes to health insurance, you have two extremes and everything in between. There is a tremendous amount of variation with deductibles, plan costs, and co-insurance rates. Generally, you’re either going to pay more upfront, or more when you go to the doctor. If you are in great health, you’ll want to pay less upfront and more if an accident happens or you come down with a serious illness. With any plan, your medical history and health conditions will play a role in how much insurance costs you.
I am at one extreme. My current health insurance is only $30 a month with no co-pay and a $10,000 deductible, after which I receive full coverage. So I have to pay full price just to see a doctor. If I never go to the doctor, I’ll pay $360 a year (this is the plan). If I come down with something serious and expensive – I’ll have to fork out $10k per year maximum. That’s a lot of money, but it isn’t hundreds of thousands of dollars like some medical conditions would cost. (Update: my insurance has increased to $55 a month for no reason…thanks BCBSNC.)
The other extreme of insurance plans can cost more than one thousand dollars per month. Of course, that would cover doctor’s visits and have a low or nonexistent deductible. These plans typically allow you to choose any doctor in the US instead of having to choose from pre-determined “in-network” doctors.
The options in between the two extremes are for most people. The average monthly premium in 2011 was $183 per person. This type of mid-range plan will usually have a yearly deductible of about $1,000 – $5,000 and co-insurance of 10-40% afterwards, with a yearly maximum on the money you have to pay “out of pocket.”
The point with health insurance is to avoid overpaying or underpaying for your health needs. Why would you pay $200 a month if you’re in great health? Why would you have insufficient health insurance if you’re going to the doctor often? Don’t neglect to think about your insurance, as it can be a massive drain on your financial resources when used incorrectly.
A Harvard study found bankruptcy’s number two cause to be job loss. Medical bills were the number one reason for personal bankruptcy, being responsible for 62% of all personal bankruptcies. Take the time to learn about health insurance and make an informed decision.
4. Learn To Shop Smart
With the emergence of online shopping, the consumer has more power than ever before. Make sure you take advantage of it. As you look at a TV in Best Buy, you can see what it’s selling for online in dozens of places. A couple years ago, I paid $150 more for my Macbook Air because I saw a deal too late. If I had researched for 5 more minutes, I could have saved $150. It was for a refurbished unit, but that’s ok with me.
As a general rule, if you don’t have time to compare prices, go with one of the low margin, high volume retailers – Amazon or Walmart.
Amazon and Walmart make very little money with each product they sell. We know this for a fact because they are publicly traded companies and they have to report what their margins are. But because of the incredible volume of sales they make, they still end up with a profit. Specialty shops are the opposite business model – their margins are high, but they don’t sell much product.
Tip: Don’t look at prices or brands at the grocery store, look at cost per unit and ingredients.
Two different rolls of paper towels might be priced at $1.99 and $2.99, but what if the $2.99 roll has double the sheets? Then the $1.99 roll actually costs 25% more than the $2.99 roll. Thankfully, most grocery stores give you the unit cost so that you don’t have to bring a calculator with you. Look for the price per ounce, price per unit, or price per pound to truly get the best deal.
I like to eat healthy, so I ignore brands and marketing and look right at the ingredients. Many brands will market to the large segment of the population that likes “healthy-looking” products, but won’t bother to read ingredients. They’ll put old-fashioned packaging on it to make it seem natural or homemade, and then dump a bunch of additives in the food. One example is Triscuits—some flavors have MSG and some don’t.
If a product has the green USDA organic emblem, then the US Department of Agriculture has verified the ingredients are organic and you can (probably) trust it. But that doesn’t mean it’s good for you—many organic foods are processed so much they lose their nutritional value and many come loaded with too much sugar and sodium.
If you think it’s worth the time, you can use coupons. Some coupon people work full time at clipping coupons and then they’ll buy $300 worth of toothpaste for 50 cents. Personally, I don’t bother with it much because my time is better spent on other things. A few coupons here or there can’t hurt though.
Extra, Random Tips
- Never buy electronic cables in a retail store. Always buy cables online – Amazon, ebay, or meritline typically have good deals. I worked at Staples for a year, and we sold USB cables for $30 each. You can buy a USB cable online for a little as $1 shipped sometimes (it works exactly as well as the $30 version at Staples or Best Buy).
- Always perform a quick coupon search online. When buying something online, type “*Store name* coupon” or “*Store name* promo code” before checking out. You’ll often find a coupon to save you 10-20% off your purchase. The best site for coupon codes is called retailmenot.com.
- Check Slickdeals.net for big purchases. If you’re in the market for a major electronic device – laptop, tv, monitor, flash drive, etc. – check slickdeals.net first. It’s a community that finds and lists the very best deals on the web (and occasionally they’ll list sales in brick and mortar stores). If it’s listed on their front page, it’s practically guaranteed to be a great deal. Careful though, as this could lead to a deal-buying addiction, which will NOT help your finances!
- If you need a printer, most people should choose a monochrome laser printer – Inkjet printers are cheap, but the ink is very expensive. Laser printers are more expensive upfront, as is the toner, but the cost per page is drastically less. If you don’t need to print in color, look to get a monochrome laser printer for about $50 on sale (Staples and Office Max have these sales occasionally for Brother or Samsung printers). The starter toner should yield about 1,000 pages. I bought a Brother Monochrome laser printer for $40 at Staples and it lasted me all 6 years of college (why 6 years, you ask? That’s another story). Inkjet cartridges only yield about 200-300 pages each, and will cost you much more in the long run. Just remember this the next time you’re offered a free printer with your purchase—they make (and you lose) money on the ink, not the printer.
5. Learn How To Sell Your Stuff On Ebay
I love minimalism, so selling my stuff has always been a double win. If you’re in a tight spot, selling your stuff is the tried and true method to make money quickly. If you have an object, there is probably someone out there willing to give you money for it.
eBay and Craigslist help you make these connections and sell your stuff. I prefer eBay, but I know a lot of people have success with Craigslist (and Craigslist is free). If you want to use both – sell small items on eBay because they’re easier to ship. Sell larger items on Craigslist because shipping large items is expensive and tricky. I’ve also used Amazon’s marketplace and I would recommend them too (especially if you’re an Amazon fan). In many ways, it’s easier than eBay. The downside is that your item isn’t auctioned off, but priced as if in a store, so it isn’t guaranteed to sell (but you can lower the price).
eBay takes a small percentage of your final sale amount. If you use Paypal to process your purchases (which is standard practice), they take another 2.9%. Between the two, you’ll end up giving them 5-10% total of your proceeds. If you undercharge for shipping, add this to your tab.
This, and fierce competition, is why it is generally difficult to succeed with an eBay business. But if you’re just wanting to get rid of a few things for cash, eBay is a fine option.
After eBaying quite a bit, I’ve found the optimal listing strategy.
1. List highly visible and popular items (most video games, iPads, etc) at a starting price of 99 cents.
It is usually free to to list an item at 99 cents, while higher amounts carry “insertion fees.” Are you worried about it selling too low? Don’t. The market for these is so large that there is no chance for you to sell an iPad 3 for $50, let alone 99 cents. Bidders like to see other people bidding on your item because it gives them confidence that you’re trusted and that there is demand for your item. A 99 cent listing guarantees a lot of bids if your item is valuable.
Lower visibility items (obscure older camera, coffee mug with a local goose on it) are best listed at a set buy-it-now price or higher starting bid, because there may only be one person in the world who wants your sentimental goose mug, and you don’t want them to steal it away for 99 cents. Look at completed listings to find out how popular an item is and what it typically sells for.
For shipping, I have a scale to weigh my items. I bought it for $30 online and it weighs in ounces (Amazon sells several postal scales). You can expect a large shipping cost increase when an item crosses the 13 ounce threshold. Items under 13 ounces cost only $2-3 to ship in the USA via First Class Mail.
In my listings, I almost always offer free shipping, as it attracts bidders and the final price makes up for the shipping costs. A $20 backpack shipped for $10 costs the same as a $30 backpack with free shipping. Ebayers are savvy enough to do the math. You do want to have an idea of what shipping will cost though – I’ve sold a few items that were simply not worth it because shipping was so expensive. Use the free fare calculators on USPS, UPS, or Fed Ex. The United States Postal Service has the best prices in my experience.
Bubble mailers: this is my favorite, as it’s the easiest way to ship your items (if they’ll fit). Drop it in, seal it, stick your label on it, and send it. You can buy these cheap online—from Amazon or eBay—for as little as 10-20 dollars for 100 of them. They come in different sizes too. I bought 100 of the DVD/Game size mailers for all smaller items. I’ll buy a larger one at the store for a dollar or two if needed.
Boxes: this is the classic way to ship. You can get boxes for free in some stores if you ask. If you shop online much, you’ll have incoming boxes to reuse. For packing materials, I prefer to use crumpled newspaper as it’s free (if you have the paper delivered to you) and effective. In 50+ shipments, I’ve never had any complaints or problems using newspaper for padding, and it sure beats paying another $5 for bubble wrap or foam peanuts! For very fragile and valuable electronics, I have purchased bubble wrap before just to be safe.
For boxes, give your item the shake test; shake the sealed box and make sure your item doesn’t move much, if at all. There should be 2-4 inches of padding around all sides of your box.
If you want to maintain 100% positive feedback like I have, describe your items accurately and thoroughly (flaws and all), pack it for rough handling, and ship your items the next day. For new eBayers, it might be best to start out buying a couple items to get positive feedback on your account—people are sometimes wary of buying from new accounts with no feedback. Here is some of my older feedback.
Final eBay quick tips
- List for 7 days – it’s the same price as one day and it gives your item more exposure.
- Consider buying shipping insurance for expensive items. I’ve had one item lost in the mail out of about 100.
- Use buy-it-now or best offer for niche items that won’t get many views. This allows people to make offers to buy, which you can accept, reject, or counter. Of course, you may get very low offers, but this option has been the difference between selling something and not selling something for me.
- If you can measure your product (by the ounce) at home, you can print your own shipping label through the USPS/Paypal system. It’s convenient.
- If you print your label at home, small items can fit in the outgoing mailbox. For larger items shipped with priority mail, you can schedule USPS to pick up your package (through their website).
- You’re only expected to mail items out on business days. If your auction ends on a Friday, you can feel free to wait until Monday to ship it.
- I don’t offer refunds on my products because I have 100% feedback and have proven that I’m trustworthy. If you’re just starting out selling, you might want to offer refunds to ease the fears of nervous buyers. This is a personal choice and may depend on the particular item.
There’s more to be said about eBaying your stuff, but that is certainly enough to get you started.
6. Learn How To Invest
Investing is my specialty. My Finance degree might convince you of this, but it is actually my years of experience investing outside of the classroom that has taught me most. There are a lot of people out there who will tell you that investing is too complicated, risky, or blah blah for ordinary people to do on their own. They’re wrong. Wise investing does require research, but anyone can learn the basics and information is plentiful online.
If you don’t want to put in the time to select and track individual stocks, that’s no problem. You still don’t need an expensive advisor.
In a personal investment account (I use Tradeking, a low-commission online broker), you can buy shares of the symbols SPY, IVV, or VOO. These are Exchange Traded Funds (ETFs), and they mimic the movement of the S&P 500. If the S&P 500—which is a representative sample of US Economy—goes up 1%, so will your ETF.
If you think the US economy is going to suddenly die, there are ETFs for everything you can imagine: gold mining companies, other countries, commodities, bonds, etc.
There is a small fee you pay for ETFs called the expense ratio, but for simple index tracking ETFs like SPY, TVV, and VOO, it is minuscule—from .05% to .09%. Even better, for VOO, no commission fees are paid if your broker is Vanguard. And for IVV, you won’t pay commission through Fidelity, TD Ameritrade, or Firstrade. For true beginners, that means you can buy or sell the ETF at any time without paying a fee (a true rarity in investing).
Do you still want to invest with a mutual fund manager? You should know that most fund managers do not beat the market’s (i.e. S&P 500’s) return, so it’s a big risk. On top of that risk, you have to pay them big fees for their services. The average fee in 2012 for stock funds was .77%—this is about 10x higher than ETFs.
With a mutual fund, you will pay as much as $20 per $1,000 invested in fees every year. A recent S&P 500 report found the funds lagged again: “According to the figures, 59.58% of large-cap funds, 68.88% of mid-cap funds and 64.27% of small-cap funds underperformed their respective benchmark indices.” (source)
Financial prosperity starts with understanding where your money goes and why. Each of these six topics could surely be explored in more depth—and I encourage that—but if you’re looking to make some positive financial changes, use this post as a basic point of reference to get started!