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Principles

Principles to follow for financial independance

7 Ways to Build Credit History & Credit Score

by Yoda February 21, 2020

Are you someone with 0 credit history embarking to be self-reliant individual in society? Are you someone with a poor credit score? Maybe you just started college or moved from another country. You might be running into issues getting a simple lease/utility connection setup or signing up for a cellphone plan. All because you do not have any credit history. Some of us have been in such situations and in this article, I am going to discuss ways to build credit history and improve your credit score.

What is Credit History ?

Credit history is a record of your debt repayments to various financial/non-financial institutions. It shows how many lines of credit you have open at any time. How much of your credit lines are you utilizing? Any bankruptcies or not in the past. If you made repayments on time in the past or not.

In the US, there are 3 big credit reporting bureaus TransUnion, Equifax and Experian. They collect above mentioned data on you from thousands of sources like your credit card provider, bank, utility, rent company etc. They then try to form an overall financial picture of you.

What is Credit Score?

A company called FICO then looks at these reports & provides a credit score for any 3^rd party. These 3rd parties might want to judge your ability to borrow and pay back money. They have their own propriety algorithm that helps give out scores based on credit history. They give some basic factors on their website. Similar to FICO scores, there is Vantage Score by the above mentioned 3 bureaus. Basic concept is the same, to judge a borrowers credit worthiness. Now that we know credit history definition and credit score, let’s look at its importance.

Why is credit history important?

It allows any financial institution you approach to borrow money to look at your credit worthiness. They can see how much money you already owe to other companies. Decide on whether to lend you money or not. This could be a new mortgage, auto loan, personal loan etc. Each place will look at your credit history to decide on the interest rate for the loan.
Many non-financial institutions such as apartment complexes, Telecom & utility companies also look at your credit history. They are trying to judge if you are managing your finances properly or not. If not, then they might decide to charge some extra refundable deposit before moving in to an apartment or to sign up for a new utility connection etc.
Even credit card companies look at your credit history before letting you open a new card with them. If they see you have not been a good borrower, to cover their risk, they might charge a higher interest rate on unpaid balances on your card.

Ways to build credit history & credit score

Now obviously if you are someone starting young or just moved to the US from another country, your credit history and credit score is going to be 0/negligible. So, you might have a hard time getting anything done. You might have to put down unnecessary deposits and lock up the money at many places of business for no good reason. So here are 7 ways you can build credit history.

1. Sign up for secured credit cards

Most non-secured credit cards at low end need about 6 months of credit history to approve an application. To circumvent this, you can apply for a secured credit card just to build credit history. In such a card, you can deposit let’s say 1000$ to the credit card company. They keep it as collateral and give you a credit card which you can use for the same limit. As you make payments on it every month, your credit history builds up. Later you have the option to convert that card to a non-secured card with the provider or close it outright and get new ones. Obviously, this method comes with the drawback of locking in your money with the company as collateral. So, do this only if you have the money to spare. My favorite one is Discover It Secured (no affiliation or referral).

2. Add yourself as an authorized user to somebody’s credit card

Credit card companies like Discover, Amex and Chase etc. report authorized users on their cards to credit bureaus. Sometimes they even report the primary users old payments on your credit history. So, this helps in building credit history quickly. You can ask your close personal friends, relatives, parents to add you as an authorized user on one or two of their credit cards. Another thing is you do not need to necessarily use the card. You can just be an authorized user and let the company report your name as one of the people involved. That is enough to build credit history. So, do make sure the person you request themselves have good credit score. However, remember to make sure to pay in full any amount if you use it to whoever added you as an authorized user. This impacts them as well as you, if you miss any payments. So be responsible for your and other person’s sake.

3. Retail store credit cards

Retail stores like Walmart, Target, Gap offer their own open loop credit cards. Stores have incentive to approve people with lower credit history. Since, once you get a card approved, you are more likely to shop there. Plus, they help retailers boost their financials with more interest income. Disadvantage is that interest rate is usually very high. So make sure you pay off these cards in full. These cards usually come with low credit limits. You do need some minimal credit-history to show up in the stores application verification. Also, make sure you get a open loop credit card with a VISA or MasterCard logo on it.

4. Unsecured Credit Cards for Immigrants, Students Or low credit history

Staying in line with credit cards, a very young person or an immigrant might have 0 credit scores or history. In such cases, try the Petal Visa Card, Journey Capital One Card, Deserve Classic card. These cards usually approve people with little or no credit history and report your activity to credit bureaus. This, in turn helps to build credit history.

5. Look for small loans from your place of education

This happened to me. I needed about a 1000$ loan from the university and I had 0 credit history. The loan was for some ceremony at the university and so they had a department that would offer 0% interest loans for this. Since the money would eventually go back to the college and I was paying my tuition fees, they were open to lending me money. And guess what it even showed up as the very first loan on my credit history and helped me to a good credit score once I paid it off. So, if you are a student who just started college, do look out for such opportunities at your university. Of course, don’t just take on loans for the sake of building credit history. Take them only if you need them.

6. Co-sign a loan

Cosigning a loan is big step for you and your cosigner. The other person is liable for any unpaid amount on the loan. But cosigning with a person who has good credit score helps you get approved for the loan. At the same time once you start making payments towards it, it builds your history.

7. Build credit history using bills you already pay!

Assuming you are renting and paying your rent every month, usually there is a payment processor for each apartment like RentTrack, Paylease etc. You pay the rent to them and they pass it on to your apartment complex. But they also have ability to report this rent payment to credit bureaus. Do inquire about this and sign up for this feature. Once you do, they will start reporting your payments and help you build credit history. This is a pretty hidden method but it works great for me! Vantage Score which is increasingly being used by many lenders already reports utility and rent payments. Similarly, FICO scores version 9 will start taking rent payments into account.

Additionally, there is a service called Experian boost. If you sign up for it, you can yourself report your cellphone plan, rent and utility payments to Experian. This only works with Experian, but at least you get to build some history with them. Any financial institution that looks at Experian will be able to see these payments under your record. They also claim this eventually boosts your credit score.

Boost your credit history and credit score using these awesome techniques! Click to Tweet

How to maintain a good Credit history

So far, we only discussed ways you can start building credit history from 0 or improve it. But, how to maintain it and make sure you get good credit score?

1. Pay in full and on time

Any kind of credit card payment, mortgage/loan payment needs to be paid in time and in full. This is the highest factor to get a good credit history and credit score. This shows you can be reliable to lend money to.

2. Have a low credit card utilization

Once you have a credit card on your own name, it comes with credit limit. Try to stay below 15-20% of it every month. Having a low utilization signals you don’t need much credit. It shows you are not living your life only on borrowed money. This helps with opening new lines of credit in future.

3. Keep credit cards open

The average age of all your credit card accounts is a small factor for your credit worthiness. So try to keep your first few credit cards open. They help in showing a good length of credit history and increases credit score.

4. Do not apply for credit cards or credit too frequently

If you apply for 2-3 credit cards in span of 2-3 months. The credit card company might think something is wrong if the person is needing so much credit. They might reject your application, and this might show up on your credit history as a negative point. So make sure you do not open new lines of credit frequently.

5. Track your credit history and credit score using free resources

Websites like Credit karma, Experian Boost provide you ways to check your credit score. This way you can see if you are doing a good job or not. Chase and Discover even show you your estimated credit score using various sources for free if you have an account with them, I find these sources incredibly useful to track my credit history and also to make sure there is not some mistake on it. If there is, you can try to request credit bureau to fix it.

You also have the option to get your credit report from each of the 3 bureaus once a year for free. It should be sufficient to check up on any inconsistencies etc. In case you get rejected for a new loan or credit card application, you also have the right to request for the credit report from the institution that rejected you within 60 days of your request.

In conclusion

I understand and have personally been in situation when I was young with a zero credit history. I know it can be incredibly hard to even sign up for basic utility services without a good credit score. It took me a few weeks to a couple of months for most of the methods mentioned above to start showing up on my credit history. In a few months I had a good score and was able to navigate any request from any institutions successfully.

Do understand that all companies involved in financial ecosystem benefit from you having a good credit history. It allows them to lend you money and make money on the interest. So it is in their best interest for you to have a good credit history and a good credit score. Then they can lend you money. Companies do understand that young people or people new to US might have 0 credit history. Now they are requesting credit bureaus to look at other payment data like rent payments etc to judge the credit worthiness of individuals. It might take a few weeks to months but you can improve or build a good credit history using above mentioned methods.

Please let me know how any of these methods worked for you in the comments below. If you have any methods, I might have missed to build credit history, please mention them too. That would help the community grow as well.

If you know someone who might need to read this article, I urge you to share it on your social media using any of the buttons on page.

February 21, 2020 0 comment

Principles Tips & Tricks

Net Worth: What, why & how to track it

by Yoda July 14, 2018

From my first article on being wealthy, we know Net Worth = Assets – Liabilities. Its a sum total of how much you are worth. It gives an idea about financially how healthy one is.

Why should I track my Net worth?

1. Important piece of data

Unless you do not sit down and find your net worth, you have no way of knowing how much wealth you have. You have no way of making any decisions that might help you grow wealthy. You have no idea if you are in deep trouble or are doing great for your age/situation etc.

2. Keep you on track to Financial Independence

How would you know if you are on your way to becoming financially independent or not? Its easily possible you are losing money every month and not realizing it. Tracking your net worth in fixed intervals allows you to be in check with the reality.

3. Make smart financial decisions

Do you know if you are in a healthy position to take a big loan? What if a big debt you have needs to be paid down faster or not because of high interest rate? Do you know if you need to increase investments in order to get higher return to get where you want to be? All these decisions require information about net worth. How much cash do you have on hand etc. Without knowing this information, its easily possible to make bad decisions and land in sticky situation few years down the line. Maybe you find you are spending way too much money every month. This might lead you to dig deeper to figure out where and how you can reduce that. Maybe that encourages you to start meal prep. Stop eating out daily. Reduce costs etc.

4. Makes you a businessman/woman

I strongly believe a house needs to be run as a business. Every few months family/concerned people need to sit down. Figure out the net worth. See how many accounts increased in value. See what went down in value. This would give so much more information to make decisions and move towards financial independence together. It gives you better understanding if an item is an asset or a liability. For e.g. if you keep tracking your car loan payments and car value using KBB every few months, it would help you realize you keep paying down your car loan amount every month. But the car value also keeps decreasing. You realize that car is taking money out of your pocket and reducing your net worth slowly. Many people keep on leasing a car every few years not realizing they keep paying money to do so. Reducing their net worth slowly and steadily.

5. Give encouragement and motivation to yourself

Once you start tracking your net worth. You start making smarter financial decisions. It just becomes way simpler to decide to take a loan or not, to go on a costly trip or not with that information in mind. You start spending money wisely once you understand your net worth needs to go up for you to become wealthy. When you track it and see that line going in the top right direction. It makes you feel good! Its gratifying! It encourages you to make even better decisions. Also gives you motivation to keep going! It can also give you great motivation to dig yourself out of debt if you have any.

How to track your net worth

There are lot of apps/websites on the market which allow you to sync all your accounts and track net worth. However, the process in each case is the same. You create placeholders/accounts for each type of item. Checking accounts, saving accounts, car loan, house mortgage, house value, car value, investments. Everything can have 1 account each. Then you group them into assets and liabilities. Some of the asset accounts would be checking, saving, investment accounts etc. Liabilities would be car loan, house mortgage etc. If you are having a hard time figuring out what goes under assets and what goes under liabilities. Do not worry. Most apps/websites already group this for you and ask you to just enter the information. After you have your assets and liabilities, you just subtract them to get your net worth. It’s that simple!

Manual or online the lazy way?

A plethora of apps like Mint/Personal Capital etc. give you the ability to simply connect your checking, saving, investment accounts directly to their app. This allows the amounts to be synced automatically. You do not have to do anything. While this sounds easier to do, I have a few issues with this approach:

Sometimes banks change their secured login API’s and most of these apps are not quick to change it on their end. What if your app tries to connect 2-3 times and bank ends up locking your account for this reason?
Secondly, I do understand that these type of connections for Mint to my bank account are very secure. They provide read only access, no one can make a transaction using that access etc. But, I still do not want to be in a position where some new sophisticated attack manages to take some other useful information using this type of connection. What if the bank refuses to acknowledge any fault if I am in a pickle, citing third party connections?
Lastly, I think doing it manually once every quarter forces you to be involved in the process. If you do an automatic sync, you are less likely to focus on it. With automatic sync, you might not even know when your net worth increased or decreased. Doing it manually forces you to take time out of your routine to sit and look up each account and enter the balance in the app/website. The more time you spend doing that, more you would think about it. It’s reinforcing the whole concept of tracking net worth to motivate and encourage yourself. That’s why I like to track my net worth manually every quarter.

How often to track net worth?

According to me one needs to do this manual exercise of going through all accounts once every quarter. It doesn’t need to be daily since that would be an overkill. You got to spend more time on other productive things. You do not want to do it only 1 a year, because by year 2 you would have forgotten about it. Doing it once every few months will force you to be in check with reality of your financial health. You can even start doing it once every month in beginning to get a more detailed idea of finances. After a few months you can switch to quarterly intervals. Again it is very gratifying to see your efforts and decisions take that net worth line to the top right in your chart.

My choice for tracking net worth: Personal Capital

Key highlights

It’s a free app/website on available for both Android and iPhone.
Very easy to use interface to enter accounts manually.
Excellent charts/graphs to show your progress over time.
Connections to do real time sync with many different type of accounts. Although as I mentioned before I usually do not even use this feature.
In conjunction with above, it even has inbuilt portfolio, 401K analyzers. However, these again need you to connect your accounts to the service. So I don’t really use them. Since I do manual account setup.
The UI to look at charts and arrangement is great! I can easily say there is nothing else on the market with such great UI. Just look at some pictures below.

Shortfalls

Fair warning, once you reach a net worth of about 100K, Personal capital calls you to schedule advisor sessions with them. They make money using their advisory services which are totally optional. The app is completely free. I usually just politely decline such calls. But do understand that you will get them.
They even have a budgeting tool, which is a new feature and I think it still needs polish. But having said that again, I do not use this feature. I solely use this app to track my net worth. So, for me its not a big negative.

Here is a direct link to sign up for free.

In Conclusion

Some of us have performance reviews at work. We usually track our work done in the last few months and discuss that with our managers. Similarly tracking net worth helps you keep performing better financially. Smallest of financial decisions taken today will help you 10-15 years down the line. When you see your net worth in black or red, you are forced to face the reality. It helps you keep grounded in your journey to financial independence.

Disclaimer: Links in this article are my referral links. I and you will get 20$ Amazon Gift card for signing up to Personal Capital. I have signed up and have found the app pretty useful for my own self and decided to share this with readers.

July 14, 2018 0 comment

Principles

Consider this before deciding to buy a house

by Yoda May 22, 2018

The answer to the question when to buy a house always depends on your personal situation. It includes where you are career-wise, family-wise, financially, location etc. in your life at that time. Sometimes people just feel the peer pressure, sometimes its just the norm after graduating you buy a house. The general advice that’s prevalent on most blogs, social media is buying a house is the best decision you can make for you future. Could be true, could be wrong, completely depends on your situation. However, I can have no say in when you decide to buy a house. It just is a very big personal decision and needs to be taken by the person or family only.

Factors you should consider/remember when you plan to buy a house

1. Buying a house ties you down

It’s a very big financial transaction in every way. You have big monthly payments, unplanned maintenance, taxes, closing costs etc. You are basically tied down to your house, location/city, job. If you ever notice in first few years of your home ownership most of your monthly payments goes towards interest. Then there is cost like commission fees on selling which is around 6%. These costs eventually may not make buying a home as sure shot investment if you plan to stay only for 5-8 years in that house. You might be selling it at barely break even or loss if you do it in that time. So be sure about having a stable job/relationship/family and are sure that you will spend more than 8-10 years here.

2. More job opportunities and pay rise early in the career

Segueing of the previous point, you need to be very flexible early in your career. It’s easy to hire and train a young mind. Companies are perennially looking for young fresh blood. They want people who can learn new things fast and are unburdened by other issues in life. Early in your career you will get plenty of opportunities to move to new roles or new companies. These will come with big increase in compensation and better benefits usually. Now if you already have a house when you are 25ish you are tied to it. These opportunities may arise in different cities, may require you to move, you would be hesitant to take it. Moreover, it would not just make any sense financially to own a house for less than 5-10 years and selling it to move. What I am saying is you have and will get more opportunities in your twenties and thirties than in your forties and fifties. So, do keep this in mind when you decide to buy a house.

3. Renting not always throwing away money

Many articles around the web point out that its better to pay money towards your mortgage than paying it towards rent. Idea is that by renting you pay something monthly but do not build equity in the house. This is mostly true. But renting has other advantages. Renting allows you flexibility. You might get a new job offer with 30% raise in a new city. Renting allows you to pack up and join the new position any time. Sometimes renting works out cheaper. I can find a nice 1 bed place to rent in my city for 800$ but would need to shell out more than 1600-1800$ in insurance, mortgage alone for a 2-bedroom house in my city. This doesn’t even include any maintenance, HOA I may have etc. Renting allows one to be free from maintenance, taxes and other issues that might take your time if you own a house.

4. Retirement planning earlier helps in compounding later

By now you probably know compound interest is the 8^th wonder of the world. If not check out my article on how investing money for retirement early and consistently works out way better by age of 65. However, if you buy a house when you are in your twenties, you wont have money to put aside to invest. Its possible some people might and that’s well and great for you. For most people paying mortgage, other bills monthly might not leave much for 401k’s. There is a big chance you will miss out on really good compounded returns. You might decide to contribute to 401k’s later in your life. Who knows what more responsibilities you have later in your life. For e.g. kid’s education, maybe taking care of parents etc. Maybe then your extra income goes towards those causes. The original plan to contribute towards retirement later just gets delayed further. But without a doubt contributing as early as possible to your retirement accounts allows you to enjoy life later.

5. Risk of losing value/bankruptcy

There are significant upfront costs when you buy a house. Huge down payment, PMI, renovation costs, furnishing costs, closing costs etc. Sometimes people decide to only put 1-5% down to cover for other costs. This compounded with an economic downturn which potentially costs you your job is a disaster. You might find yourself not able to pay the mortgage. You might have to sell the house. Its easily possible the house will fetch lesser value than what you bought for. However, the loan amount will be more than that and will result in bankruptcy. So its very very important to plan for such scenarios, have some extra money on the sidelines to make sure you can cover mortgage in such situations. You need to make sure you have emergency savings just for this.

6. Location!

Not only does having a good location impact the house value in future. But it also is important to make sure you don’t have to commute too much to and from work. A much longer commute can easily increase your gas and auto expenses like insurance and auto maintenance. There have been lots of studies that prove people who commute more end up growing un- healthy. This just makes sense. You spend more time commuting and being grumpy because of the traffic and get less time to work out. So make sure that the location of the house works out for your advantage.

In Conclusion

I am not here to tell anyone to not buy a house. I only suggest people plan for the factors above and have a good contingency in case anything happens. In essence, you must make sure you are ready to own a home. You have a stable job, stable income stream, stable family/relationship. You must try and see yourself sticking to the same house for more than 8-10 years. It hopefully is even your forever home! Home ownership is a good investment, but only when you hold it long term. In short term it can go up or down. But in long term it almost always will go up. Happy house hunting!

May 22, 2018 0 comment

Principles

Planned Obsolescence: What you need to know

by Yoda February 24, 2018

Following up my article on Instant gratification and how companies use that to make us buy unwanted things, I also wanted to write about planned obsolescence. This is another technique companies use to force us to spend more on items they sell. It’s the art of deliberately shortening the lifespan of a product and at the same time convincing users to upgrade to newer products sooner than what is necessary. This enables the company to ensure customers keep coming back to generate future revenue.

How do they do it and some examples?

Smartphones are the most ubiquitous technology around and most examples I have below are mostly for it, but the points are valid for other lesser ubiquitous products as well.

Launching new models with “supposed” improvements in processor, features etc. every year. Some manufactures of smartphones now launch 2 big flagship smartphones a year! They try to do this with a lot of hype and marketing.
Most manufacturers make best features available only on latest flagship. Even if they are software tweaks or gimmicks, they will only have them on latest flagship so that entices users to upgrade.
Manufactures nowadays delay software updates or in some cases don’t even bother with updates for older generation phones. Apple has also been caught providing updates that subtly make phone slower.
Making it difficult to repair locally or by yourselves. Most manufacturers like apple have started using proprietary screws, nuts etc. These are not available anywhere else so as to make it as difficult as possible to get your phone fixed if it breaks. When you go in through the official channels, for simple fixes you are usually quoted higher than normal prices. They try to force you to buy a new phone outright rather than paying for repairing it.

How to avoid or work around Planned Obsolescence?

Most electronic items are designed with planned obsolescence in mind, so there is no way to completely avoid it. But what you can do is adopt these techniques. It helps you make sure you are not spending too much of your hard-earned money on things that are essentially going to depreciate to 0 within the next 2-3 years.

Don’t buy the latest generation of the gadget. Companies are now coming out with new iterations of their popular products every year. The development/testing cycle has become very short. Its almost impossible to come out with a great reliable product. Most new smartphones including Apple and Samsung phones are riddled with hardware/software bugs. Some or the other bug make it annoying and difficult to use in day to day life. Complaining to customer care doesn’t really solve the issue. Most manufactures take the risk of releasing faulty/untested product to launch it before their competitor and make small improvements in subsequent production of the same phone a few months later after fixing some hardware bugs! They just use as their guinea pigs for testing and guess what we pay them to do so!
Segueing off the previous point, smartphone depreciate at an insane rate. Cars depreciate about 40-50% off the value in 4-5 years. Phones on the other hand are probably worth 0$ by year 4. Most retailers usually give 1+1 offers, 200$ off on the same phone 2 months after they are launched.
Ideally try and buy the last gen phone when you are looking at phones. Usually you get them at a really good rate and there is not much improvements in the 2 generations. Or else try buying the latest gen phone 8-11 months after its released. This way its tested thoroughly and since the newer gen is about to come out, you get a discount on the current phone. Even better is to buy second hand from reliable sellers.
Use your credit cards to increase the warranty of such products. If you buy them using a credit card you can extend the warranty up to 3 years. In case of repairs at least get your credit card company to pay for them.
Go for quality and open source properties of the products. That makes them easier to repair and make them last longer. For e.g. for cars, look at reliability and ease of availability of OEM parts. Buy used so that it costs less and lasts longer and easier to fix. In case of shoes pay a bit more to get better quality which can lost longer than cheaper shoes.

Hopefully this helps you gain more knowledge about planned obsolescence. Now you can use this knowledge to be more careful making financial decisions in your life.

February 24, 2018 0 comment

Principles

Instant Gratification and How to Avoid It

by Yoda February 19, 2018

I wanted to write a little bit on Instant Gratification and how we should try to avoid it. Most organizations and big brands today know about this and use it against us to make us spend more money on day to day items. If you know about instant gratification and can avoid it using the strategies mentioned below, you can make a positive change not just in your financials but also in your health, self-esteem and confidence.

What is Instant Gratification?

Humans are very emotional beings. Some of the most basic emotions humans have are desire, pleasure, happiness etc. We usually tend to forgo our long-term goals to fulfill our innate desire to get some need met quickly and without much hard work. Basically, our long-term goals usually involve lots of hardships, uncertainty, pain, endurance all of which makes our brain very uncomfortable. When we see something that we really like our brain forgoes all reasoning or logic. Our impulsive nature and emotions take control and it becomes difficult to stop ourselves from buying something or doing something that gives us instant gratification.

In the modern world fueled with technological advances it has become easier than ever for companies to help us fulfill our emotional needs by trying to sell us things we(don’t) want and as soon as possible.

Let’s look at some examples to see where we see this in our day to day lives

Social media is all about being in the moment. Dating apps allow you to pick up dates in spur of the moment. There is no waiting needed. You post something on FB or IG and you get instant replies and likes from your friends making you happy! Netflix allows you stream anything you want instantly! No waiting needed. You can binge the whole season in a day and you get your dinner delivered at home in 30 min.
Same day delivery/two-day delivery: Amazon and other companies are pioneering in the field of logistics and are able to deliver you anything you want from a anywhere in 2 days or less. Again, eliminates any need for waiting. I am guilty of this I order a brand-new smartphone and the day its arriving I go home early from work. I am literally waiting for the mailman at my door to deliver my phone tracking almost real time how far away from my house he really is. One delivery is fine but many deliveries later and you are now a trained monkey who keeps ordering online and getting boxes full of crap you don’t need delivered at home in 2 days or less.
Convenience is the name of the game. Price per can of coke is the cheapest if bought at Costco or a big wholesaler and is highest if the same can is bought from a vending machine. Why? because in buying that one can of coke from vending machine you are fulfilling your desire/emotions to be satisfied immediately. Its more comfortable to pay for it rather than to go to a store and buy it.
Newbies and recent graduates join real world jobs and within a year feel like there is no job satisfaction. They complain and then want to switch jobs. No one really wants to go through the hardship and the pain to take time and patience to build a career. And I won’t blame them, they have just been trained to get what they want right then and there.

All this slowly keeps training us to expect anything and everything instantly. This leads us to not have any patience. I recently read an article where in a small child who went to dinner with his parents could not for a minute remove his eyes from his smartphone. His parents understood it was bad manners and tried to snatch away the smartphone from him. Suddenly child became restless, eyes twitched, started feeling angst, uncomfortable etc. It’s as if he had an addiction to smartphone. He could just not stand being away from it and just wanted to go back to his phone. Problem is Instant gratification is only fleeting. Its temporary. Once you buy the latest smartphone or do whatever to feel happy for a few moments, few days later you want something else to make you feel happy.

How to avoid Instant gratification trap?

Delay Gratification! When ordering stuff online put it in your cart and leave it there for a day or two. This forces you to give your brain some time to think if you really need this thing or not. You would be surprised to know how very rarely you would go back and order the item.
Don’t pay for 2-day delivery services. It’s a great convenience to have anything arrive at home in 2 days. Amazon themselves in their earnings release statement note that members who have prime services on an average order twice or more from their website as compared to non-prime members. If this is not an example from horse’s mouth then I don’t know what is.
Have a long-term goal in mind which you want to achieve. It can be financial, or career related etc. I just want to be financially independent as soon as possible. So, whenever I try to buy something I always go back and relate it to my long-term goal. My brain sub consciously tries to force me to not buy something in spur of the moment since I remember my long-term goal.
Try to visualize your goal. When you feel like you want to eat fast food try to think about how healthy you can be, probably avoid obesity, diabetes etc. by not getting the fast food option and going for the healthier option.
Reading this article is also good enough. Once you know about instant gratification and know you must avoid it. Next time you come across making any such decision your brain will sub consciously try to remember about long-term benefits and advantages and will try to sway you to the right choice!

You will find that as you build more patience, resilience and endurance you will be more successful in all parts of your life not just financial.

February 19, 2018 0 comment

Principles Tips & Tricks

Car buying: New, Used or None at all!

by Yoda February 13, 2018

Never buy a new car PERIOD. Its a completely needless expense you will take which is almost guaranteed to drain money out of your pocket. First up let’s look at a graph of car’s value and car loan payments after its bought new. Let’s try and track it along the course of its lifetime. I am mostly using the cars values from public sources and websites and trying to plot them on a graph:

Let’s say you paid 2k$ down for a new vehicle(total price = 20K). We see that the moment you buy a new one and drive it off the lot. Its value decreases by at least 10%. What you will find is its already worth 18K if you try and sell it back to the dealer same day. Talk about a liability taking money out of your pocket! If we keep plotting your monthly car payments as expenses, you can see how your expense on the car keeps going up and up and look at the value of the car as it keeps slowly decreasing year by year. Over years 3-5 its already lost about 40-50% of the value of the new car! All these expenses are just monthly loan installments. We have not even included any car repairs or insurance payments at all in the above graph. So, when you take all those expenses into account, I hope you do realize that buying a brand-new car is just draining your hard-earned money down the hole.
Instead you can simply buy a car that’s 3 years old and still get same level of performance and it depreciates a lot slower as compared to a new car. I personally got a 3-year-old Camry from a third party dealer which has worked out really good for me so far! I still use it and have had barely any problems. Any small repairs I do myself like changing aux ports, filters etc. and haven’t really had to spend too much on any major repairs.
When it comes to lease, what you are paying for is that high rate of depreciation on the vehicle. The 160-200$ payments which look pretty good at the start make you only pay for the fast decreasing value of the vehicle. Once at the end of the lease you decide to say buy the car, the manufacturer will ask you for 300$ monthly payments now not your 200$ payments!
With all this in mind, I can only say that we should realize that a car is a liability in the long run whose value is almost always bound to go down to 0. A car is probably the second largest purchase you will make. In order to be wealthy as we know we need to have more assets than liability! So ideally, we should try to reduce as much as possible of this liability and here are some alternatives:

1. Used cars

Instead of getting a brand-new car, 3-4 years old used cars are often reliable. Cost very less and do not have many expenses at all. I personally got a 3 year old used car which has barely given any problems. It has worked real good so far! I do minor repairs like aux port changes, filter changes myself. Then take it for inspection once a year to see if I need any changes.

2. Public transportation

If you live in big cities like New York, Chicago or Seattle, you should make use of the public transportation system. I even have a few friends in cities like Houston and Dallas that are not that much known for their transportation. But they have been able to make really good use of public transportation for their day to day routine.

3. Uber/Lyft

These days ride sharing apps are all the buzz. Its possible to use these apps and completely give up your vehicle. If you add expenses for your vehicle like insurance, monthly payments and fuel costs. Most of the ride sharing apps have monthly ride passes which are very cheap. They also offer very competitive discounts since they are new. You may be surprised to know sometimes using ride sharing apps is a better option then owing a car.

Let me know in the comments if you have any questions or how your car buying experience went!

February 13, 2018 0 comment

Principles

Must Read Personal Finance Books

by Yoda February 11, 2018

As I mention in the about page on the blog, I find it hard to believe that financial education is something that is not at all taught about in schools/colleges in our education system! I strongly believe this would help new graduates immensely in being better with their finances. Most people who come into possession of money without knowing how to utilize it judiciously, spend it as soon as it comes in. So, to be good at anything just as we go and study/research it, I studied personal finance. Below is a list of books I feel have helped me in my journey so far. I suggest everyone try and read these books for a really good introduction to the world of personal finance and investing. I would also request people to try and go through these books in the order. Since I have tried to put them in a way so as to help you learn things step by step in an organized manner:

So, this book has nothing to do with personal finance or investing at all! However, this book has great tips on networking and becoming more affable. Developing a personality that will help you achieve success in your professional and personal life. This book explains how by caring for people in simplest of ways you can bring about a big change in your personality. Lots of successful people form Warren buffet to Bill Gates attribute their success to this book!

This book by Mr. Clason is a classic! Very old book set in very ancient times. Still teaches the most basic principles of finance. For e.g. how you should pay yourself first, spend less than you earn and invest the rest. How to make your money work for you and not the other way around. In a nutshell all what my blog is about and what I want it to be viewed as. This book teaches seven principles on how to live your financial life by and should be something that everyone should live by!

It dismisses your preconceived ideas about famous millionaires you know from everyday news and media. This book shows some real-life studies conducted on millionaires and expands on the concepts discussed in the previous book by giving examples. It shows how your actual millionaires are just simple frugal people living in your neighborhoods who do not really show off their wealth. Live frugally, spend below their means, invest and have different sources of income. The book really makes it look easy to become a millionaire!

This goes onto explain in more detail how you can make your money work for you. It gives a simple explanation of why poor people spend more money on liabilities. How wealthy people keep adding to their assets and keep increasing their overall wealth. This book really changed my perspective on fancy cars, gadgets. I now usually think very carefully when making a big purchase. Take my time to realize weather I am really buying an asset that will help me grow or a liability that will cost me money.

This book really begins discussing more concepts on investing money in the market to make more money. Hopefully by this time you know about the basics of stock market. The book presents cold hard statistics to prove why investing in index funds is the simplest easiest way to go. I definitely agree with how index investing can keep you up with the market. It doesn’t really need a lot of research on picking these funds. You can setup an account with a broker and buy these funds and you are good to go!

This book takes you from the crazy Tulip market madness in 1600’s to markets in 1960’s and even the dot com boom and bust. This discusses the technical and fundamental analysis people usually do before buying a stock, their advantages and disadvantages. It also guides you on your portfolio allocation strategies according to your age. Also introduces you to concepts in market like Beta, 401k’s, IRA’s etc. It gives you generic personal finance advice. This is obviously power packed with a lot of useful info!

Peter Lynch was able to achieve 29% annual returns for more than a decade and he shares how he was able to do so in very simple terms. There is not much technical jargon in this book. Even then it does an excellent job of guiding you to make individual stock purchases. Primarily based on observing the surroundings around you. Looking at insider buying activity, observing small things occurring in your neighborhood. Using your expertise in your industry to identify future winners!

This book goes into details of how to pick individual stocks in a very specific dividend paying stocks category! It explains how dividend paying stocks are usually the most robust and high performing stocks. Shows they how have outperformed non-dividend paying stocks historically. It also explains what attributes of a stock to look at when deciding whether to buy it or not. It also mentions some pitfalls to avoid when looking at such stocks. This is my favorite strategy and I use it to buy individual stocks outside of index funds.

Guy Spier is a value investor which is another strategy some people use in the stock market to find under values depressed stocks. However, his book discusses not about his strategy but his journey in the markets. How he started as a ruthless Gordon Gekko style investor and later changed after meeting visionary like Warren Buffet. How his idea about not just stocks but also life changed significantly for the better. It’s just a very interesting story. Guy throws some valuable tips on investing and how to have a positive attitude on life!

This book is like a summation of everything you have read so far from my list! Title might make you think its about investing in stock market. But you would be surprised to read about lots of awesome tips on saving money everyday. Some really efficient tax strategies! He also discusses tips in the stock markets. Then goes on to discuss how you can talk to your kids about money. How to make sure they end up in a position better than you! I feel this book is really the pinnacle of all you have learnt so far.

So, the books above have different types of strategies when it comes to investing. I believe no one style of investing is wrong and no one style is completely correct. What you choose to do when you have money to invest depends completely on you and your situation. Maybe you are very young and can afford more risk. You may have time to choose individual stocks wisely and gain returns form that. Maybe are about to retire and you want to do bonds or more fixed return investments and less stocks. Or maybe you just want to get index funds and make sure you at least get the standard market returns!

In Conclusion

My aim was to raise awareness of all the things you can do to make sure you are on your path to financial freedom. To enable you to focus more on things you like and love and not necessarily worry about money. Getting to just know about these things puts you ahead than your peers. It opens your eyes and the mind to the world in a way you have never thought about before!

February 11, 2018 0 comment

Principles

Being Rich vs Being Wealthy

by Yoda February 10, 2018

Many times, people get confused between the being rich and being wealthy. They do not really think there is a difference between the two. But believe me this is the difference between financially independent or chasing money for the rest of your life.

Being Wealthy vs Being Rich

Being Rich is measured in terms of money. We see people around us driving a fancy car, wearing expensive clothing or going on big vacations every few months. We naturally, probably even rightly assume they are very rich. Rich people could have lots of money but may also have lots of expenses. Maybe they have borrowed a lot of money on credit cards, loans to be able to afford that lifestyle. But the question is how long can they continue doing that? Can they continue driving the best cars, taking expensive vacations or living such a “rich” lifestyle for a long time? Does this sound or look sustainable?

Probably for a few people who have lots and lots of money (think multi-millionaires, billionaires) can sustain rich person’s lifestyle.

But reality is percentage of people with that kind of money is very less. Maybe a few million people in 7.2 billion people on planet can only afford to sustain the Rich person’s lifestyle.

Rest of us can earn lots of money over our lifetime but will still have very little when we get to our retirement. We can live the rich person’s lavish lifestyle and show everyone else that we are rich but how long can that last? Will you be able to afford your current lifestyle during retirement? Or will your standard of living drop once your earning power reduces?

So, what are we to do?

Being Wealthy is something measured in time. It basically allows you to live a sustainable lifestyle over a long period of time. It gives you a sense of security on how long your money can last. It’s not just earning money and just working hard to earn your money. Its more about slowly gaining freedom from your work and indulge more in your hobbies. Spending more time with your family or continue working if you want to, but give you a piece of mind. It allows you to make choices and decisions which you otherwise would not have. Basically, let’s say you spend 1000$/month and you have 10,000$ then you are 10 months wealthy! After that you run out of money.

Being Rich doesn’t necessarily translate to Being Wealthy.

How to become Wealthy? Let’s first look at a few technical terms:

Net Worth: All the money you own in cash/stocks/real estate/other assets – the money you owe like loan payments/mortgage payment/debt/student loans

Essentially, Net Worth = Assets – Liabilities

Having a six-figure salary doesn’t really mean that you are wealthy. You only become wealthy by increasing your net worth. There are many Americans today who earn 6 figure salaries but are considered high earning poor people. When most of us try and figure out our net worth, despite earning 6 figure income most of us realize we have too much debt to pay off, too many monthly payments on phones, cars/mortgage to maintain a certain level of lifestyle. By the time we have done paying off every monthly payment all we have left to put down in assets column is almost close to 0$!

However many a times we do not really know what an asset is and what is a liability. In today’s world, marketing and advertising are so good that people easily fall in trap of buying something and not realize it’s a huge liability and a burden to them financially. So let’s look at how we define assets and liabilities with some examples.

Assets	Liabilities
Something that produces more income for you over time, most of the time passively without you having to do anything!	Reduces the amount of money you have in hand. Keeps drawing off money from your account slowly and slowly
Stocks: over the long term (2-3 decades) usually increase in value and are example of assets	Car: every month you pay lots of money to your car company and your insurer to use a car in which you hardly spend more than 2 hrs. a day
Multiple houses: One house to live in and other houses to rent out and earn a passive stream of income from.	1 house: Having just one house is a liability until you pay it off. After you pay it off its just a place to stay, doesn’t really bring in any money
Savings account that earn interest, retirement accounts etc.	Monthly cable, cellphone bills etc.

To become wealthy you need to add more assets and try to reduce liabilities. Over time you will notice assets keep increasing your net worth passively allowing you to focus on other issues.

February 10, 2018 0 comment