Archive for the ‘Personal Finance’ Category

Money Tips from a Professional Student: On Expensive Eating

This is the second in a series of articles directed towards college students – both graduates and undergraduates. As a PhD student in my 5th year after being an undergraduate for 4 years, you can call me a professional student. Through various experiences, I have learned a few things that can save money and help to reduce expenses. This series is dedicated to these suggestions. In the previous article I looked at textbooks.

After the costs of textbooks are taken off the table, the next area in which spending can easily get out of hand is food. Everyone has to eat, but the question is how you can eat without hurting much in the wallet? Here are a few of the things that I have seen that could help in managing costs of eating.

Attend Cultural Events: Every college campus has an international student organization and as a current (and former) member of several international student organizations I can attest to food being a major item in planned events. Most of these events take place on weekends, during dinner and cost little to no money. So instead of spending money at a Chinese buffet off-campus, support the Chinese Student Organization by attending their cultural event. You get the added bonus of interacting with people of other cultures in addition to eating well. Check your campus newspapers for details on these events and prepare yourself for some delicious dining.

Buy groceries: This is the most common way to save money. Knowing how to cook is an advantage but even if you don’t know how to cook there are easy food packages from Ramen to 5-minute rice to Hamburger Helpers. It’s a guarantee that you will save with a $2 ground beef and $2 hamburger helper package because it costs less than buying a similar food item that’s premade and you will usually have enough left over for a full meal. There are plenty of cheap and easy-to-make food packages ranging from oatmeal to Ramen to 5-minute rice. This is useful whether you live on or off campus. For more on grocery shopping tips, check out an older article from Get Rich Slowly

Cook in bulk: If you’re already buying groceries, take time on the weekend to make 2 – 3 different meals in bulk and refrigerate them for the rest of the week. Cooking more than one meal provides the variety required in a regular diet and reduces the monotony of only eating one meal (Of course if you’re like me and loves eating rice for days on end, there’s nothing wrong with that either). Another way this helps to save money is when it comes to resisting invitations from friends and co-workers who are constantly asking you to go to lunch when you just can’t afford it. Now you can say “I packed my lunch already.”

Make friends: If you don’t have a kitchen on-campus, offer to cook for a friend/classmate that lives off-campus and you both can share the meal. If you do have a kitchen off-campus and can’t cook or don’t have the time to, invite someone who can but doesn’t have a kitchen. This is basically an exercise in trade by barter. It still works even in 2009 (and beyond)!

Organize a Potluck: Although potlucks are usually organized as social events to foster camaraderie and conversation, it can also be another way to cut expenses. Consider that instead of eating out at a restaurant and paying individually, you can have a variety of dishes at a low cost. Although graduate students organize potlucks more frequently than undergraduates, this is a benefit to both parties. Using this idea, potlucks can be organized around themes (Game Night), sporting events (Super Bowl) or even T.V. shows. And if you are unable to cook, you can always offer to provide drinks.

Coupons: Before you skip over this section, remember that using coupons are more of a mental hurdle than anything else. How would it look eating at Applebee’s with a coupon for $5 off? Does $5 really make a dent in a $30 meal? It’s an internal battle, but when you think about it $5 is essentially half of a movie ticket or a haircut or 2 cups of coffee from the campus shop. Websites like campusfood.com and restaurant.com regularly offer deals and coupons to local restaurants. For those living off-campus, there is regular bulk mail delivered featuring pizza coupons and fast-food deals. Although these foods are inherently unhealthy, and minimizing them in your diet is the most beneficial habit, the focus here is not to eliminate bad habits but attempt to reduce their cost.

Brew your own coffee (or tea): From helping you make it through an all-nighter to giving you that extra kick in the early morning, caffeine intake usually increases proportionally with the time spent in college. A cup of coffee can range from $1 – $5 depending on the temperature, flavor and size. Yet this cost can be highly reduced if you make your own beverage from home. A little research using Wal-Mart and Walgreens website provides the following

Item

Cost

Coffee Maker with a Timer

$20

Folger’s Classic Roast (33.5 oz)

$13

French Vanilla Liquid Creamer (For Flavor)

$3

Coffee Mug

$10

Total

$46

Some people don’t consume that much coffee, but if these numbers are way lower than the amount you spend on coffee (Check out these useful tools) it might be time to modify.

Eating well does not have to come at a premium and food doesn’t have to bite into your pocket money if you network with people and make some of the things you pay high prices for. What are some of the other ways in which you have been able to reduce costs? I’ll update this article based on the suggestions I receive.

Coming up next in the series – Money Tips from a Professional Student: On Housing

Image from PhD Comics
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Money Tips from a Professional Student: On Expensive Textbooks

This is the first in a series of articles directed towards college students – both graduates and undergraduates. As a PhD student in my 5th year after being an undergraduate for 4 years, you can call me a professional student. Through various experiences, I have learned a few things that might save money and help to reduce expenses. This series is dedicated to these suggestions.

So you have a stipend or loans or money from the parents to cover your books, somehow it still doesn’t make parting with $400 for textbooks any easier. Even more painful is paying $120 for a new book and only to sell it back to the bookstore for a measly $40. I know this experience very well and I learned (as a senior) that I could have saved a fortune over the course of three years. Some of the methods I tried require more effort than others and one of these methods (using older editions) you may never try. However, the goal here is to get to keep more of that textbook money in your pocket (or bank account).

ProfStud_Book_1
  1. Buy Used Books: The most common technique is to buy used books from sites like Amazon.com, BarnesandNoble.com and half.com. These sites usually have various editions and versions of the book and connect you to other vendors (usually students) who are selling the book. A disadvantage with this method is that you may not know the required text until the professor hands out the syllabus on the first day and then you have to spend more money on shipping to receive the books on time.
  2. Contact your professor: When you aren’t aware of the required books, email the professor(s) over the break to ask about the books for the class. You can let them know you want to get them ahead of time to cut down costs. Almost all professors will oblige you. Once you get the response, go to the aforementioned sites. An added advantage to this route is that the professor will already know your name before the course begins and that never hurts.
  3. Bookstore Website: Once in a while, you come across professors with tardy responses or no response at all. In that case another option is to try your college’s bookstore website. The bookstores get the list of course textbooks way ahead of time and then list the books on their site for purchasing. Take advantage of this and look up the required books on the site and then get them cheaper from other sites. Think of this as sticking it to them for buying back your books at ridiculously low prices.
  4. Use the Library: Request the book from the school library and use it while waiting for your book to arrive from the site that you will order from. Better yet, use the book over the course of the quarter and renew it as many times as possible. In the state of Ohio, all public college libraries are linked so if you don’t find a book at Wright State University, you can rent them from from Ohio State University. Ask your school librarian if there are opportunities like this at your school. This means you should know where the library is if you don’t already.
  5. Use preceding edition(s): Something I have noticed (especially in the sciences) is that material doesn’t change much from one edition to the next especially with books that have undergone several revisions (Really good books undergo very few revisions and revisions are years apart) Changes usually involve extra examples, problem sets and pages with the subject material unchanged. When I went this route, I just made photocopies of relevant questions using my friend’s textbook. If you want to insure yourself against risk, borrow from the library to compare how drastic the changes are to help you make a decision on obtaining the newer edition. Note: If you decide to do this, make sure to check with someone in the class who has a recent copy to make sure that assignments are the same.
  6. Rent and Exchange: While writing this post, I learned about two other opportunities I haven’t tried, but are useful nonetheless.
    • A student of mine recommended chegg.com and rentabook.com which are sites where you can rent textbooks. I would advise anyone who is doing this to check the math just to make sure that it’s worth it. Sometimes it’s better to own than to rent especially in cases where you might need the book for a whole year. If you’re into nature preservation, you will like that chegg plants a tree for each book you rent. Environmental Awareness and Expense Control all at once.
    • Another student referred me to a book exchange website hosted by the school’s student senate. I am not sure if other schools have this sort of network, but I know that most schools maintain a listserv dedicated to students trying to sell their materials at really low prices. Your Resident Assistant might be a helpful resource here.

Buying textbooks are a basic part of any college student’s career and the experience is that much sweeter when you know that you won’t be breaking the bank every semester.

Coming up next in the series – Money Tips from a Professional Student: On Expensive Eating.

Image from http://www.flickr.com/photos/pleasewait/ / CC BY-NC-ND 2.0

The Emergency Fund: Your Financial Red Cross

What do you do when:

  • your source of income suddenly stops?
  • you’re suddenly ill and insurance can’t cover all the costs?
  • you have to travel immediately due to a close relative’s passing away?
  • your car breaks down and you realize you have to spend $700 or more on repairs?

Sure you can use credit cards to cover some of these expenses, but how long can you do that for especially if the first situation is also true. This is when the Emergency Reserve comes into play. It sounds basic and like common sense, but this is the most important account for any independent person (and often the most overlooked). In discussing this, we can focus on the What, Why, Who, Where, When and How?

Emerg_Fig1

What: What is an Emergency Reserve?

According to the Merriam-Webster Dictionary Online, an emergency is

An unforeseen combination of circumstances or the resulting state that calls for immediate action

Two words stick out clearly here: unforeseen and immediate. Consequently,

An emergency reserve is money kept aside for unforeseen situations that call for immediate attention and action

This means that this money should only be used for things that are unplanned. Consequently, emergency reserve should be separate from your savings. Usually when we save, we are saving for a goal e.g. a vacation, new gadget, textbooks, accessories etc. As such, while savings is usually money for planned activities, an emergency reserve is money for unplanned activities. In a way, you can call your Emergency Reserve your financial Red Cross because it arrives on the scene when emergency rears its head.

Why: Why should I care about an Emergency Reserve?

As mentioned above, this money is for unforeseen circumstances which can (and does) happen to anyone. Thus the prime reason for having this reserve is simply: peace of mind. Rather than worry about money in a time of crisis, you know there is money somewhere and that helps to focus on the crisis itself. Besides, if you already insure your car and health, shouldn’t you also be insuring your finances as most emergencies hit the pockets first?

Who: Who should have an Emergency Reserve?

An emergency reserve is necessary for anyone who is (or wants to be) dependent on themselves for financial resources. Therefore, this person has some sort of regular income which pays their bills and they are not necessarily dependent on their parents or family members. This reserve is also important for those who have dependents.

When: When should I start an Emergency Reserve?

As soon as possible! Right after reading this article!! I’m kidding. Well kinda. In all seriousness, you never know when you will need this, so it’s best to start as soon as you can.

Where: Where should I keep my Emergency Reserve?

Since this money is required for immediate action, it should be kept in a savings account that is linked to a checking account. This way, the money can be easily transferred when it is needed. I would stress here that it shouldn’t be in a checking account simply because just as much as this money should be accessible, it should also be untouched. With an emergency fund tied into a checking account this is very prone to happen.  In addition, the advantage is that it generates interest while sitting in the savings account when untouched.

How: How much should an emergency fund have?

For this question there isn’t always a straightforward answer. I have heard of 1 month, 3 months or even 6 months worth of expenses saved. I have also heard of using figures like $1,000 – $5,000. I personally keep set my goal at $1,000 just because it’s a nice round figure and also because it covers a month worth of expenses at the moment. When I leave graduate school and start a family, I am sure that number will go up. The most important factor here is that you set a minimum that will give you peace of mind.

I’m hoping that I have somehow convinced you about the relevance of this very important financial tool or at least initiated some thoughts into starting your own emergency reserve. When crisis happens, you will have your own Red Cross to lean on.

The Spending Pyramid: Personal Values and Financial Planning (Part II)

In yesterday’s article, we were able to explore the structure of a spending pyramid a la Robert Pagliarini.

Pyramid_Fig2

Based on Dan Pink’s lecture on motivation (which I embedded in another article), there are three human motivating factors.

  • Autonomy – The urge to direct our own lives
  • Mastery – The desire to be better at something that matters
  • Purpose – The yearning to do what we do in the service of something larger than ourselves

As you begin to think about what motivates you in general, you will be able to rearrange the middle portion of the pyramid (in between basic expenses and miscellaneous expenses) to conjure up a picture that aligns with your own values.

Autonomy: Your Money and Yourself

SPPyramid2_1 Image courtesy of Flickr

If directing your life is what motivates you then debt reduction, financial independence and personal improvement will rank high in your pyramid. The most important thing to you is being in control of what happens in your life and blazing your own path. Therefore, neither owing money to credit card companies nor retiring while being financial dependent sit well with you. As such, most of your spending will be directed at your money going mostly into your pocket prior to anything else.

Purpose: Your Money and Others

SPPyramid2_2Image courtesy of Flickr

For some, being financially fit is the means while the end is the ability to serve others and the community. If the realization that there’s more to life than your own needs, then donations to church and charity will rank high on your list. Those who attend church have a set value at 10% (tithing) and will also donate in others ways. Even if you don’t attend a church, you find that donating towards a cause brings about a certain kind of satisfaction. In addition, these donations can also be used for tax deductions.

Another area not reflected in the pyramid is provision for family (both immediate and extended). I told a story of how my father laid the foundation for my siblings and me to go to college. That couldn’t have happened if he didn’t believe that part of his purpose was leaving a legacy to his children.

Mastery: Your Money, Yourself and Others

SPPyramid2_3Image courtesy of Flickr

Sometimes, motivation lies in being better at something for the sake of just being better (epitome of kaizen). Two of the most popular New Year Resolutions in the U.S.A. are managing debt and saving money. Hence it would appear that most people would fall under this category as most believe that finances matter. This belief combined with the desire to understand finance could be a motivating factor for another set of people. Therefore, Goals and Emergency Reserve would rank higher in your pyramid. Goals motivate towards reaching a pinnacle while mastering personal finances starts with being prepared for emergencies. Personal Improvement would also fall under this category as mastering finances would include studying financial matters and learning from others.

Most of the time, personal motivation will come from a combination of two or all three factors and therefore you will find that your values overlap. In the end, the final picture is letting the things that motivate you in life also motivate shaping your finances. Create your own picture and it will lead to spending habits that are aligned with what you think is important.

The Spending Pyramid: Personal Values and Financial Planning (Part I)

Do you ever find yourself wondering where the time has gone at the end of the day? It starts out bright and you perform the required tasks for the day, but the rest of the time has flown by before you realize it? This is often also the case with money.

In his book The Six-Day Financial Makeover, Robert Pagliarini warns that when spending isn’t planned, it often follows this pyramid with money flowing from the top to bottom and reducing in quantity as it trickles down.

Pyramid_Fig1

Like required tasks of the day, Basic Living Expenses are the first things that normally come out of a paycheck. You pay rent, water and electricity bills, insurance, buy groceries etc. However, if there is no plan in place for the rest of the money, whatever is left over often gets spent on Miscellaneous Expenses such as shopping, entertainment and the occasional dining out. Before you know it, there’s very little left over and this little is stretched into the remaining part of the pyramid. This is the kind of lifestyle that tends to lead to living paycheck to paycheck and a continuous cycling of debt.

Robert then suggested a different sort of pyramid which he termed the “Optimized Spending Pyramid”

Pyramid_Fig2

The top part of the pyramid is still Basic Living Expenses while the Miscellaneous Expenses lie at the bottom. Everyone in the finance field will agree that this should always be the case i.e. Pay bills first and then spend chump change on wants. The disagreements arise in the middle portion of the pyramid and the order in which those items should occur. Should Debt be paid off first before establishing Emergency Reserve? Should I give to Charity or the Church when I have debt piling up? Should I be saving for Retirement when I don’t have an Emergency Fund established? And so on and so forth.

The fact is there is not one correct answer. Even when there is an answer that makes sense mathematically, it can be hard to tailor emotions to the arithmetic. This is where personal values come into play. A bible verse says

“Where your treasure is, there your heart will be also.” (Luke 12:34)

The order of priority simply depends on how much value you place on each area of the pyramid. If it’s more important to you not to owe anyone anything, you will find yourself focused on Debt Reduction. If you care a lot more about things going on with the less-privileged in your community, Charity will rank higher in that pyramid. If you care a lot more about developing your skills e.g. learning new software for your job or improving your reading skills, Personal Improvement will rank higher on the list. Whatever the case may be, this portion of the pyramid will be ordered entirely on the things you value most.

Money, like time, if not planned wisely often trickles into the areas of life which don’t rank high on the priority list. Therefore establishing a plan is important, but more important is that it should be your own plan. When the created plan is yours and based on your values, you’re more prone or at least have a stronger desire to follow it.

As a follow-up to this article, tomorrow I will connect Dan Pink’s talk about the three aspects of motivation and relate it to how you can begin to arrange the middle portion of this pyramid to fit you.

Note: I found out this morning through Get Rich Slowly that Robert Pagliarini is offering his E-Book Plan Z: How to Survive the Financial Crisis as a free download. I haven’t checked it out but his Six-Day Financial Makeover was easy to read and comprehend and I expect this book to be the same.

Common Cents and My Dad

“A good man leaves an inheritance to his children’s children” – Proverbs 13:22

I have written about how my dad inspires me to be just like him and better. Some of the lessons that he taught me were hard to understand or grasp or even practice at a young age. Now that I am older and I look back on some of his thoughts, I realize how smart he is.

There was a conversation I remember having with him about cars. I don’t remember how we got on the topic, all I remember is him saying “I could drive a Benz like some of my other peers, but I realize that you guys need to go to school and that’s more important.” Thanks to my father, I didn’t have to take out loans to attend my undergraduate. Neither does my sister who’s currently an undergraduate nor the one who will be an undergraduate next year. I don’t think this feat would have been possible without my father’s thoughts about what was important and relevant even before we (the kids) were even born.


CommonC_Peugeot

For as long as I can remember, we have always had two cars: one from the company my dad worked for and the other owned by us. Both cars were Peugeot 504s (Check out the stationwagon above). For comparison, a Peugeot 504/505 in Nigeria is like a Ford Focus in America i.e. a simple and very commonplace car. I never really thought about why that was the car we had or whether we could have driven something else. At about the age of 16, I actually started to notice luxury cars (the BMWs and the Mercedes of the world) and like any other kid, I dreamt about owning one and rolling down the street with a girl at my side (Ah, teenage dreams). Even when my father made the comment above, I wasn’t really thinking about what he was referring to: being frugal.

Many (including me) think that being frugal means being miserly or being stingy and can is too restrictive. It’s easy to think that the only way to have more money is to make more money without also focus on controlling expenses part of the money equation. It’s the reason why I enjoy reading people like Trent (@ The Simple Dollar) and JD Roth (@ Get Rich Slowly), because they talk about the many ways in which being frugal is a healthy and fruitful lifestyle. It’s the same philosophy that the authors of The Millionaire Next Door were writing about.

That Bible verse I mentioned above is one that reminds me of the legacy that my father is bequeathing to my siblings and me. And I am learning now that being frugal actually just means living below your means so that you can dedicate funds to what is truly important. For some that could mean the ability to send your kids to school and for others it could mean no debt collector calls.

For me, it’s a lesson that’s helping me keep my equation balanced so that I don’t fall into the trap of earning more and retaining nothing.

Free Online Money Tools

Aside from the free personal finance managers mentioned here, there are also some other online finance tools that I use that can be of value to you.

Credit Karma

tools_credkar

A FICO score is what most people refer to as their credit. It’s a number that determines how much interest you will be paying on that loan from the bank or that loan from the car salesman or the interest rate of your credit card and your credit limit. In other words, this number is critical to your credit rating.

Each of the credit reporting agencies  (Equifax, Experian and TransUnion) has a different score, but you have to pay each time you choose to see it. With Credit Karma, you get something close to this score for free. The score you are provided is not your true score but an approximation.

tools_creditrep

One feature that it has is a Credit Report Card which grades you based on criteria such as Total Debt, Debt to Income Ratio, Debt Length etc. There is also another feature which allows you to see what effect actions such as opening another credit card or increasing your limit on a card will have on your score. It’s a great tool to check out if you are interested in taking care of your credit.

Networth IQ

tools_netIQ

The most important factor in determining wealth isn’t your income, but how much of that you keep and accumulate. So it is pretty important that in earning more money, you ensure that your overall networth is growing.

This is an online tool that helps keep track of your networth (as the name suggests). You manually put in numbers for amounts for savings, debt, assets, stocks etc and then this tool keeps track of how your wealth is growing and changing from month to month. Here’s my current badge below.

tools_netbadge

Tip’d

tools_tipd

Think of tip’d as a digg (link) for finance. For those who haven’t used digg, it’s a site that aggregates links and they are ranked by popularity. In the same way at tip’d, articles from various sources are linked to this site by either the authors or others who have read them and the links are ranked by popularity (the number of tips received). This is useful in that it links you to various finance categories (Business, Currencies, Funds and ETFs, Personal Finance etc) and you can catch up with the latest news within these categories. You can also discover other bloggers and information sources that you can keep track of with an online reader.

Let me know of other tools out there as I am sure there are many that I haven’t tried myself.