The Smart Nickel: Saving Advice

I was just curious after seeing a blog post on Pine Cone Research who apparently pays money for people to take online surveys. The organization only accepts people on an invite only basis though so I haven't been able to get registered. After looking online, I found a couple other sites like Survey Savvy and Harris Poll but I was wondering if anyone had any recommendations for legitimate sites that also offered money for surveys.

Discover More Rewards Card (Discover): This is a fairly standard card for students since it is fairly easy to get (I believe it was advertised as a student card before, but I think it is the same as the one given to non-students). I started out with a $500 credit limit and it has basic cash-back rewards. It has a revolving 5% cash back on certain categories like groceries, restaurants, department stores, and travel. For example, from January to March, I can get 5% cash-back on restaurant purchases. These revolving 5% cash-back is subject to a maximum limit (i.e. 5% cash-back on up to $600 of grocery purchases), so make sure to pay attention to that if you are spending partially to get the cash-back. It is also important to note that the card normally gives UP TO 1% cash-back on other purchases (I believe it is actually around 0.10% up until a certain spending amount before it actually becomes 1%). I usually only use this card on when I have the revolving 5% bonus. Something that is really nice about the rewards system though is that after earning, let's say, $20 in cash-back, you can actually get another bonus and trade those rewards for a $25 gift card. This increases the yield and makes the Discover card one of the most attractive rewards vehicles in terms of credit. Again, the acceptance is not ubiquitous but there probably won't be too much difficulty with places accepting the card. The limit is also fairly low, especially compared with Chase Freedom and it's low yield on non-5% categories is annoying, but I believe the extra bonus in rewards when you redeem your cash back makes this card worth having. Discover also has a great small balance credit where if you carry a balance of $2 or less, they just write it off and you get that money for free. This means if I haven't used my Discover card for the month, you can be sure I'm going to get a free bagel or something cheap.

Chase Freedom (Visa): Chase is one of my staple credit cards. It is similar to Discover in that it has a revolving 5% cash-back and basic 1% cash-back on normal purchases. It comes with a nice sign-up bonus (mine was $50 after the first purchase, but there are better ones like $150 after spending $500 in the first three months so look around) and they have some interesting features such as full-pay where they will tell you your total spending in certain categories so that you can pay those off and avoid paying interest on it. I got the feature even though I never use it since I pay off the bill in full every month, which is again what I recommend to anyone who gets a card. And Chase Freedom is definitely a card I would recommend to anyone who has a decent credit history since the Visa network makes it more widely accepted than Discover. If you can get the offer for $150 cash-back after $500 in purchases within 3 months of getting your card, then just buying a round-trip ticket from home to a vacation spot alone could satisfy the minimum and get you 30% back on that $500. Chase also gives a bonus to consumers with a Chase checking account which is quite nice.

There are several factors to keep in mind when picking a credit card, but the most important one in my opinion is that it should have NO ANNUAL FEE. There are so many credit cards available without an annual fee that I don't see any reason to get one that does. The main benefits with a credit card are already achieved through a standard one, so one with an annual fee doesn't seem justifiable no matter what marginal bonuses are added on. And annual fees are like a guaranteed cost. They are not necessary and should be avoided in looking for a credit card, at least when you are starting out. For many of the other readers on this site, if you do spend a lot of money each year for your entire family, these cards may make a lot of sense. For me or any other college student, however, almost every credit card should be annual fee free.

The second thing I look at is the rewards. Most cards give 1% back as a basis, either through cash back or points, and have additional benefits on special vendors or in revolving categories. This is how you measure the potential return a card can give you on how much money you spend. There is often also a nice signup bonus where you can get $50-$100 after your first purchase or spending a set amount of money in a set amount of time after receiving your card. Also, I personally prefer cash-back but there are other options such as points and miles that you may prefer. It is important to look at what rewards program your card will offer and if it matches your tastes. I'll mention some of the rewards with certain cards below.

The third thing to look at is the network. I generally find card acceptance for networks fall into two tiers: Visa and Mastercard are the most widely accepted while Discover and American Express seem to have lower acceptance, although this has recently been changing. I believe that Discover's student credit card is fairly popular, and I generally don't have too much problem with its acceptance at vendors in general. Depending on how much of a credit history you have, I would recommend trying to get a Visa or Mastercard, all else being equal (rewards and annual fees).

Another important feature to pay attention to is the APR (annual percentage rate). However, I would say this is the least important number if you do what I do and pay off your entire bill at the end of each month. The APR is the interest rate charged on any unpaid debt after the grace period. I'll have to admit that I don't know the APRs of any of my credit cards simply because I never pay interest. This number generally varies between 10-20% but may be higher or lower and it is very important to pay attention to it if you are someone who is likely to be unable to fully pay the balance on your card at the end of the month.

What are some of the other things people pay attention to when choosing a card?

I have seen a lot of other blogs and it seems like credit cards get a really bad reputation. The "positive" reviews about credit cards are usually just the ones that talk about getting a card for the promotion and then cancelling it. What a waste! I believe that credit cards should be used to earn you money over the long term through the cash back programs. With a good portfolio of credit cards, you can probably average around 2-3% in cash back rewards each year, not including some very profitable sign up bonuses.

A lot of college students actually don't use a credit card, or at least a lot of my friends do not currently own one. Yet I believe a credit card, used wisely, can actually be one of the best ways to make some money back. Nowadays with the rewards programs offered by many credit card issuers, it is easy to make back 1-5% back on your normal purchases and you are essentially getting paid to spend what you normally spend. For those of you who have a savings account, this means even more potential earnings since you delay payment of your purchases by a month or more which allows your cash to earn interest in the bank.

First of all, what is a credit card? A credit card is a plastic card with a magnetic stripe which you can use at most businesses. You have some credit with an issuer, let's say $500. Essentially, when you make a purchase with your credit card, the company giving you credit promises to pay the business you are shopping at and then bill you at the end of the month for the total purchases you make, up to your credit limit of $500. Why would a company offer to pay for you? Credit card companies make money through two main sources: interest on late payments and fees charged to merchants. You usually get a grace period of around 25 days after you are billed to pay the amount you spent that month, and if you pay it in full before the grace period ends, there is no interest charged. If not, then whatever balance you have not paid off will accrue interest (usually 10-20% which can add up, so make sure you pay your bill in full every month if you do decide to get a credit card). Also, if you swipe your card at your local grocery store for $10 worth of groceries, the store actually only receives perhaps $9.50 and the last fifty cents go to the credit card issuer and the credit network you are with. There may be a minimum fee along with a percentage, which is why a lot of stores often have a minimum purchase requirement to be able to use your card.

Why should you use a credit card? The first reason many people start getting a credit card, especially when they are in college, is to start building up a credit score. This credit score, called a FICO score after the company that handles the process, is a measure of how risky a person is with credit. It is used for other credit cards, car loans, mortgages, etc. The main metrics used to determine your FICO score include your credit card payment history, the length of your history, amount of debt you currently have (in proportion to your total credit limit), new credit you have recently opened, and the different types of credit you have. The score itself is between 300 and 850 and normally determines whether you qualify for loans and other forms of credit above, as well as how high of an interest rate you will be charged.

The second reason is to be able to afford things you normally wouldn't be able to (and not have to carry around a lot of cash all the time). By using a credit card, you could buy something you wouldn't be able to afford until next week when your pay check arrives. Although I use my credit cards the same way I do cash, there are some people who forget about how much they spend in a month and often go overboard. However, if you use a credit card the same as you do cash for necessary purchases, you can actually make money off the rewards you get back, which brings me to the third reason.

This is probably the most overlooked reason since many people underestimate how much 1% on how much a person spends in a year really is. It can easily get up into the hundreds of dollars a year for essentially buying the same things you would buy normally. And, depending on how you manage your credit cards, you could end up earning back 5%.

So to sum up, getting a credit card at any age is important to start building your credit history, to have the option to spend more than what you actually have, and to earn cash back for almost no extra work. Especially as a college student, it is important to learn how to become fiscally responsible and manage your personal finances. Of course, the critical note to remember is that credit cards can be very dangerous without full control over your spending habits. Many people fall victim to spending more than they can afford just because it is available and they don't have to worry about paying it until later. If you do get a credit card, only spend what you have the cash for and make sure you follow a budget. In the end though, credit cards are the logical first step toward personal finances, and I would strongly recommend getting them. Hopefully, this post has shown why they are important and you can read a future post to decide how to pick which card is right for you.

I've now talked about why you should budget, so now let's talk specifically about how to budget before going on to budgeting tools. There is one method I would like to talk about called the 50-30-20 budget. It is often important to break down your expenses into different categories, and generalizing them into three overarching sections can help simplify your budget and make it more easy to read. This budget uses the Balanced Money Formula which breaks down your after-tax income into three categories: 50% needs, 30% wants, and 20% savings. I've pasted the image below so that you can get an idea of what it looks like.



They define needs the same way I do necessities: your rent, food, health care, transportation, insurance, clothing. Wants are cable TV, cell phones, books and magazines, vacations, and food and clothing beyond the basics. Again, they also recommend that this is a guideline instead of a bible. For example, I would probably move the phone bill to necessities in my budget.

Also, the 50-30-20 budget breakdown can be adjusted to your desires. For me, savings would probably take up more than 20% simply because I don't have many wants besides my needs. Right now, about half my income is spent on necessities, albeit I do go out and eat at a nice restaurant once in a while, and the other half I usually just save. I try to take advantage of free internet and free food events (which I will probably have a post about later as well) so my formula is pretty different.

The main takeaway is to shift the weights to match your goals. Your basic rent and insurance premiums probably do not change month to month, so after a while you should be able to see what percentage it is of your income. Find out if your needs takes up 30% or 50% or 70% of your income and learn what excess income you have to allocate to wants and savings. If you plan on making a large purchase in the near future (a house or a car), you may want to have savings take up the majority of what's left of your after-tax income after your needs. If you don't plan on purchasing anything big for a while, perhaps you can spend more on your wants and save a little less (but hopefully after reading about how much your savings can grow, you will be a little more enticed to save).

So, figure out your goals in terms of your plans for large purchases over the next few years. As a college student, it may be a while before you start really thinking about buying a house and a car but it shouldn't be too far off. Remember that budgeting is simply a guide to let you know how strong you are setting up your financial position for the future. If you want to celebrate during Christmas and spend most of your income after your needs on high-end restaurants and a shopping spree, go for it as long as you are okay with it. But you should always try to save at least a little of your paycheck for emergencies to have some margin of safety. With later posts, whatever money you do save should be able to grow significantly to help you out when you do need it and you should be able to feel secure with your finances.

How do you budget and what has worked for you?

Hi everyone. So first, I wanted to mention that I blog about personal finance, mainly targeted to college students and young adults looking for a one-stop source to get all their information. I'll post some more relevant educational stuff on SavingAdvice, but I'll try to post some more day-to-day blog update type entries as well. Please comment if you want to see something specific on here since I love to research new areas of personal finance and feel free to check out my original site (you can just google The Smart Nickel).

I'm sure most people on SavingAdvice know the reasons why budgeting is so important, but I thought it would be a good start for this blog to go over the reasoning before looking at actual budgeting techniques.

Budgeting is a critical control technique to try to take out emotions from our purchasing habits so that we don't overspend and put ourselves in debt. However, people often don't take the initiative to budget because of the limitations it puts on them and it is a little tedious to do. There are lots of applications to help you budget, and I by no means have tried them all. I will try to focus on some of the major reasons why you should budget and talk about how to do so easily with basic programs in a later post.

First, why should you budget? I believe that it is extremely important to know where your money is going. A lot of people think that the number one reason is to limit their expenditures, but I would argue that the primary reason you should budget is to be aware of what you are spending your money on. Is most of your money going into rent and groceries or high-end restaurants and shopping malls? Setting limits is fine, but there isn't any extrinsic force that will punish you for going over your budget limit. You are in control of your finances; as long as you are aware of what you are spending your money on then budgeting will have been successful regardless if you stayed under your limit or not. This means though that every time you make a purchase, you will have to record it somewhere. This can be pretty tedious for some people but I will talk about certain tools you can use in a later post.

The next and more obvious reason to budget is to control your spending. A lot of people suffer from impulsive shopping and often spend more than they can afford. This is often overdone in combination with credit cards (a few articles I have written which you can see here) since with a credit card, you don't actually need to have the cash on you to spend it. And business often try to do everything they can do facilitate consumer spending. Do you know why milk and eggs are always in the back corner of every grocery store you visit? It is so that you have to go through the other aisles first, to entice you to see something else you need to buy. Online shopping has exploded with the internet and now all you need to do is enter a credit card number and click a few buttons to spend as much as you want. Now, while you are still in control of your spending urges, you can logically plan out how much money you can afford to spend in the next week, month, or year and how much you want to save for future spending. These limits that you set don't have to be concrete, but they should be a very good guide about how much you are logically willing to spend over a given timeline.

Let's say you budget $200 for food this week. However, your best friend gets a job offer in the middle of that week and you all decide to go out to a very fancy restaurant to celebrate. You end up going over budget. Have you failed at budgeting? No, you had a general idea of how much you were going to spend and you know what circumstances led to you going over budget. Obviously, this example is a little different from setting a budget of $200 for clothes and then getting so excited over a sale at the mall that you spend $400, but in either case you can look back and see how your actions measured up to your expectations. In the shopping case, maybe it would be good to total up your purchases before going into the check-out line. Or maybe you should increase the size of your shopping budget if you are okay with spending that amount. However, given a limited pay check, whatever you move into shopping will have to come out of something else and if it turns out that you would have to cut food or rent, you may end up rethinking your spending habits.

Again, you are in control of your finances. Hopefully, this post has been able to show you how useful a tool budgeting can be in order to meet your goals and expectations. My next post will be about how to specifically budget by using excel, apps, or other programs. Combined with later posts about savings and investing, hopefully you will be able to create a comprehensive idea about how you can maximize the value of your money in the present and for the future.