Wad of Turkmenistani Manat
Ashgabat, Turkmenistan 11/08
If there’s anything I’ve learned since stepping outside the college bubble and into the real world, it’s that financial literacy in America is piss poor. Every day, personal budgets are neglected, debts are magnified and irrational decisions are made. Did you know that at the end of 2008, the average credit card debt per American household–regardless of whether they had a credit card or not–was $8,329? Pretty wild, when you think about it. Given that the average interest rate on a credit card is roughly 15%, a household with that much debt can generate over $1,200/month in additional interest debt. Yikes.
Just over ten months ago I wrote Mapping Your Financial Infrastructure, an article about the importance of deconstructing your finances. You know, where money comes from. Where it goes. How much (and in what capacity) you save and invest. It was a good first-step in my adult life–systematically observing how money flows in and out, looking for ways to optimize.
In a continous effort to stay on top of my finances, I recently reread I Will Teach You To Be Rich, my choice when it comes to all things “personal finance.” Yes, the title is scammy-sounding and seemingly presumptuous, but trust me, the author knows his stuff. Over the last month, I have taken his advice to heart and made a few infrastructural changes.
Credit Cards and Frequent Flyer Miles
I applied for a new credit card, the Citi® Platinum Select® / AAdvantage® World MasterCard®. Long after my career as a cost-of-living surveyor is over, I still plan on traveling. This card has a much better airline rewards program than my previous card, the Bank of America WorldPoints Rewards Visa. I get 30,000 American Airline miles for signing up, and the annual fee is waived for the first year. Normally I’m against the idea of an annual fee (in this case $85), but all the best credit card reward programs have fees. Note: I did not close my BoA Visa! It has a really high credit limit ($13,600), so closing my access to that limit would significantly and negatively impact my credit score.
From Bank of America to Schwab
I moved checking accounts from Bank of America to Schwab. Lately I’ve had a couple of situational issues with Bank of America and I’ve been looking for a reason to move on to greener pastures. I chose Schwab’s High Yield Investor Checking account. Schwab comes highly recommended for a variety of reasons; customer service, the fact that they reimburse ATM fees and a strong paperless system, to note a few. I was also attracted to Schwab because they make it easy to set up and fund a Roth IRA.
Opening a Roth IRA
For the last few years I had been investing $100/month into Class-A American Funds. While the American Fund family consistently outperforms its peers 1-2% each year, each Class-A fund has a 5.5% load, or fee. This means that for every $100 I invest, I’m only really investing $94.50. It’s not much, but with so many other no-fee options out there, I want to capitalize on compound interest.
I stopped putting $100/month into the American Funds and chose to open a no-fee Roth IRA instead. If you’re not familiar with the benefits of maxing out your Roth IRA contributions, read this.
The point I want to make is this. In today’s digital age, tracking and controlling and optimizing your personal finances has never been easier. The tools are there. The Internet makes it…so…damn…easy. Over the last month, the two or three hours I spent making the changes above will no doubt save me thousands down the road.
Do yourself a favor this week. Take a peek at your financial situation and see if there’s any room for positive changes. Do a little research. Fill some holes. I’d be happy to entertain any questions you have about credit cards, savings accounts and the like. I’m no expert, but hopefully I can point you in the right direction