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PrinciplesTips & Tricks

Net Worth: What, why & how to track it

by Yoda

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.

net worth 1

net worth 3

net worth 4

net worth 2

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.

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Tips & Tricks

How to lower your Cell Phone Bill

by Yoda

Cell phone bill is a huge drain on everyone’s wallet. Most US customers have monthly payment plans with the top three careers. These plans charge around 40-80$ per line per month for data. On top of this most charge you an additional 25-50$ per month for just buying the phone on installment plan.

cell phone bill high

Reduce Phone Installments to 0, go with NO contract!

In my opinion there is no need to buy a phone in installments. If you cannot afford to pay 700+ dollars for a phone outright. You don’t need to buy that phone on installments at all. Phone is just another liability like a car. Its depreciating asset whose value will go to 100$ or less in 2 years. Plans today like JUMP, NEXT etc. are designed to get money out of you every month. 1 year done? Time to upgrade to latest I phone. All you got to do is keep paying. Remember planned obsolescence from my article? Phones now a day are not created with good quality control. Most of them have some or the other issues. But it’s still possible to use them for 2-3 years if you want. So, there is no point in buying the best I phone for a 1000$ only to change it 2 years later. That’s like 1000$ down the drain. Saving money on phone is easy:

  •  Buy cheap phones from companies with good customer service because you are probably going to need it.
  •  Make sure you buy using a credit card that doubles your warranty. You will probably end up using later and the card company will service it for free.
  • Avoid buying the latest gen phone, buy a generation older instead. There is a small difference in specs and things phone can do between 2 immediate generations. Most of it is just software gimmicks.
  • Buy latest gen when you know you are getting a great deal as incentive when you switch carriers.

Reduce text/talk/data cell phone bill

Now lets come to the meat of the article which is cell phone bill for talk text & data. I have listed a few carriers which I really like and which are continuously innovating to help reduce the bill on your wallet.

Project Fi

Key highlights:
  • 20$ base + 10$ per GB of data monthly
  • Credit on next month cell phone bill if you don’t use all data on prorated basis. If you use only 300MB of 1GB you get back 7$ next month.
  • Same data rate internationally (3G-4G speeds) in over 170 countries.Check countries here.
  • Unlimited plan available to but I won’t recommend that.
  • Works only on few phones. Although they have added more options in all price ranges recently!

This is an offering from Google. They basically rent networks from Tmobile, US Cellular and Sprint. They have a smart tech that switches you from one network to another if a network is weak in your area. The switch is seamless, and I never had any problem with it. You can even do calls using your laptop and using your wifi on phone. It links to your Gmail account and you can do messaging off there too.

Good for:
  • People who have access to wifi most day so they can save on data daily.
  • People who travel internationally a few times a year.
  • Great customer support on any question related to billing,device support if bought from Google.
Shortfalls:
  • Limited number of devices that are officially supported.
  • 20$ for talk and text and 10$ for 1GB of data seem steep in today’s world of unlimited data.

Check out here to apply for Project Fi.

Tmobile

Key highlights:
  • Family plan with 4 lines costs only 40$ a month on Tmobile One, more people the merrier! (this is the only plan I recommend)
  • Can be reduced to 30$ cell phone bill every month using kickback on less than 2 GB data usage.
  • Gets you Netflix access for free on plan with minimum 2 people.
  • Tmobile Tuesdays has great deals that can get you a dough nut/movie tkt etc. for cheap every week.
  • They also provide 2G-3G speed data internationally at no cost in over 140 countries.

This is probably the only big carrier that has been innovating like crazy. The above-mentioned points make it really cheap to use Tmobile as your provider. Helps save money on Netflix as well! For almost 30$ a month you can easily get 2GB of data with kickback on a family plan per line making it even cheaper than Project Fi.

Good for:
  • People who will be able to create a plan among themselves.
  • Those who are judicious with data usage and can take advantage of kickback.
  • People who travel internationally since it gives an option to not buy a local sim.
Shortfalls:
  • Most customer service is usually nonexistent.
  • Sometimes the MVNO provider

Don’t forget the MVNO’s (Mobile Virtual Network Operators)

These are virtual network operators. Just like Google’s Project Fi, these networks rent out bandwidth from big 4 carriers and then let users use it. They in turn offer way cheaper prices and allow you to bring your own device. So you can buy a cheap phone online and use them. Since they rent networks from the big carriers, there is no problem with connectivity. I would suggest you check the coverage map on their website before signing up with them. Some of the best ones are Mint, Teltik, Ting(Tmobile Network), Redpocket(Works using all) or Cricket(AT&T).

My only warning is to make sure you check the coverage area on the provider’s website. Search online to see what network they rent from. Also make sure you know the phone you have is supported on that network(GSM/CDMA). People are usually hesitant to give MVNO’s a try but its easy to sign up and connectivity is great at insanely cheap prices.

Good for:
  • People who are a bit tech savy and know what type of phone is needed under BYOD plans.
  • Those who want absolutely rock bottom prices. Some of these plans start at 10$ for 500MB-1GB of data a month!
Shortfalls:
  • Most customer service is usually nonexistent.These are pretty small business that just lease the network. So don’t expect a great customer service, although the service at big 4 carriers isn’t great either.
  • Sometimes MVNO has  lower priority on the main providers network they rent. Usually this is very rare and too small to worry about or notice any difference.
  • Some advanced features like Wifi calling or texting from laptop may or may not be available. Maybe you don’t need those.

cell phone bill decision regrets

In Conclusion

If you are paying more than 35$ on your monthly cell phone bill then you are doing something wrong. Cell phone bill is another monthly liability which you should try to reduce as much as possible. Think about how you use your phone. Do you make a lot of calls for work or personal use? Do you just need data to check social media and browse internet during the day? Make sure to incorporate your daily habits into decision making. Make sure to buy phone without contract and choose a provider that allows unlocked phones and charges low. Hopefully the tips above help you reduce your monthly cell phone bill.

 

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PrinciplesTips & Tricks

Car buying: New, Used or None at all!

by Yoda

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:

car used new 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!

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Tips & Tricks

How to take advantage of Credit Cards?

by Yoda

credit cards picI keep hearing from my friends and reading from a lot of articles that we should avoid using credit cards. Most of them suggest that use of credit card essentially means using money which you don’t have. Credit cards incite you and encourage your spending behavior. They make you careless about your lifestyle and finances. Before you realize you will be falling down the credit card debt spiral.

I do agree to most part, however I do have few reasons on why to use credit cards and how to use them. By being more efficient in using them and learning to control your habits, you can bring them on your side. Credit cards can then not only help you get a better credit score but sometimes also help you achieve some financial and personal goals.

Here are some of the reasons you should use credit cards

  1. No liability

    Most of the credit cards today offer zero liability protection. This means if your card details are hacked (which believe me happens way more often than you think). You find unauthorized transactions, you can just call the credit card company and get those charges disputed. You will never end up paying for those fraudulent charges. Some debit cards do offer this protection. But I think it’s easier to get this processed through a credit card company. Debit card provider may take a lot of time and leave you without some cold hard cash in the moment.

  2. Fee free foreign currency Transactions

    When you travel outside US, you need some form of payment. You can withdraw money from local ATM or maybe carry cash to the country by changing it at a bank. That works if you are visiting a country where primary form of payments is cash. But downside is you get hit by bad transfer rates and fees especially at ATM’s. They are notorious for this. Credit cards again come to the rescue by providing fee free transactions in foreign currencies at almost little to no extra cost. Usually banks that provide credit cards add a very-very small commission rate on top of the prevalent exchange rate between your card currency and the foreign currency. You always come ahead as compared to if you withdrew cash at ATM. One thing to remember is to always ask the merchant/cashier when traveling to charge your credit card in local currency.

  3. Rewards!

    Credit card companies earn money on transactions by taking a cut from the vendor when you swipe your card. They then offer you a fixed or variable amount of rewards in form of cashback or points. There is a whole world of information out there that deals with cards to maximize these rewards. I will probably not go into details of that here. But I can tell you using these rewards I have not bought a flight ticket out of my own money in the last 3 years. Just by making use of credit card rewards systems. I have been to many places domestically, internationally without having to pay anything out of my pocket. Shopkeepers usually markup and charge all customers extra in order to compensate for the 2-4 % cut of every transaction that the credit card company charges them. If you are not using a credit card and earning the cash back. You are just using your debit card/cash to pay for someone’s processing fee and not getting any rewards in return!

  4. Purchase protection/Extended warranties

    Many credit cards now come with purchase protection and extended warranties for most of the electronics you buy. These features have helped me get out of pickle many times now. I have bought smartphones from some companies that have just randomly stopped working after 13 months. I found myself out of warranty with the manufacturer (and believe me this was a very big company). They refused to help me since I was out of the standard warranty. Luckily I bought this phone using a credit card which provided extended warranty. All I had to do was just ask the manufacturer for an estimate and send that estimate to the credit card company. They reimbursed me that amount and my phone got fixed. I think this is a very big advantage and I highly suggest readers to use credit cards to purchase electronics. Companies are practicing planned obsolescence to force you into buying more and make profits.

  5. Rental Car Insurance

    A lot of credit cards come with collision coverage for when you rent a vehicle on a trip. You need to make sure that the coverage your credit card offers is primary. This will come into effect without going through your own car insurance. Many cards offer this. I think this is an excellent advantage for people who travel a lot. I will write a detailed article on this later.

  6. Better organize finances!

    When you pay by debit cards or cash, you pay then and there. Money is gone from your account instantly. When you pay using credit cards, you pay the credit card company on or before your payment date. But the transaction may have taken place 20-30 days before you made the payment. How to take advantage of this? You can ask your credit card provider to change your payment dates, so that you pay your credit card bills after you get paid from work. You can then organize your purchases on different cards with different payment dates. If you get paid twice in a month then it becomes even more easier because you can put your next purchase on a card that always has a later payment date!

  7. Building Credit!

    This is probably the most basic features of credit cards. If you are young, starting out on a job and no credit history. Credit cards usually help to build credit history real fast. You must obviously utilize your card very carefully. Always pay of balance in full before due date. Never carry any leftover balance. Try to clear the balance even before it hits your statement to take your utilization lower. Eventually this helps you in getting better interest rates when you go out to shop for cars house and whatever!

In Conclusion

So, with all this in mind, I do highly request readers to use credit cards. Before you go though, I would like to also write up a short note on self-control. I do believe credit cards encourages spending and makes it easier. However, we all must exercise self-control. I can only go as far as to give you tips on why to use credit cards. Maybe even how to become better in managing your money and growing it further. All of these steps require you to exercise control over your temptations which at the end of the day are the exact things keeping you from becoming financially independent and allow you to pursue other goals which bring you more happiness!

 

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