Beating Broke

Personal Finance from the Broke Perspective

IS HEALTH INSURANCE A GOOD INVESTMENT FOR LONG-TERM?

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Don’t we love planning things? Whether deciding what clothes to wear at a conference to picking a vacation spot for summers – people prefer staying ahead of time. Unfortunately, no matter how much you plan, one can’t get hold of destiny. Life is unpredictable since you never know what happens the next minute. Alongside planning, consider preparing yourself for the best and worst times. You can seek financial security by making some substantial insurance investments.  [Read more…]

Six Pesky Bank Fees and How to Avoid Them

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If you are looking for bank accounts with no fees, you will soon discover that you have to look for different types of services if you want to avoid pesky fees completely.

This is because classic banks will always either have fees or hidden fees to surprise their clients with. However, we simply cannot work without a bank account or a credit card nowadays. 

Therefore, instead of stashing our cash under floorboards and in cupboards, we should instead learn how to avoid those pesky bank fees with a bank that can adequately manage our finances. 

Minimum Balance Fee

As you know, there are some banks that require a minimum balance. In some cases, if you don’t meet this requirement, you will most likely be charged a fee. 

On top of this, some banks will also close your account if you leave it unattended or underfunded. In order to avoid this minimum balance fee or the closing of your account, ask your bank exactly how much money there must be in your account and try to keep its balance above the minimum.

Overdraft Fees

If you opt-in for overdraft protection, you basically don’t have to worry about running out of money. If, for example, you’re short a couple of dollars, your payment will still go through. 

However, this type of protection also comes with a $35 fee, no matter the extra amount that you have spent. In short, you can go overdraft with as little as $5 but accumulate fees worth $70 or more.

The easiest way to avoid this fee is to avoid overdraft protection altogether. If you don’t want to, then simply watch your balance regularly and set up mobile app alerts as well because they can alert you when you are about to overdraft.

ATM Fees

We are all familiar with ATM fees. If you use an ATM associated with another bank, not only are you charged a fee for not being a customer, but your bank may also charge you for using an out-of-network ATM.

To avoid these pesky fees, you can start by sticking to your own bank and having some cash on you at all times. If not, then you can head to a store and ask for cash back after you’ve made a small purchase.

Maintenance Fees

Maintenance fees are the fees that you must pay a bank in order to keep your account open. In other words, you must pay the bank so that it lets you keep your money with it.

As strange as it sounds, this type of fee is real and can cost you up to $120 a year. However, there are a couple of things that you can do to avoid it. For example, most banks will not charge you maintenance fees if you have the minimum balance in your account. Banks will forget about this fee if you make a certain number of direct deposits to your account as well. 

Paper Statement Fees

If you receive your bank statement on a paper in the mail, then you may know that you are charged a fee of around $1 to $2 for this. To save on this fee, the obvious option is to go with electronic statements. Not only is this the less expensive and greener option, but your statement will also reach you faster.

Excess Activity Fees

While some banks will charge you for being inactive, some will charge you for making too many transactions. According to Federal Regulation D, people with savings accounts must make no more than six transfers and withdrawals in a month. 

If you go over this number, the bank will usually either warn you not to do it again or simply refuse to make the transaction. However, there are banks – a lot of them – that charge an excess activity fee.

To avoid this fee, you can use your checking account as excess activity fees don’t apply to this type of account, or use the teller or the ATM within the bank – you can make as many transactions as you want by doing this.

The Bottom Line

As you can see, bank fees come from all the possible directions. Everything you may do related to your bank account or credit card may also have a hidden fee that you must consider when using or not using your credit card or when withdrawing money from other ATMs.

In short, you must become informed about hidden bank fees and speak with someone from your bank about the fees that their institution applies to its customers. Or if you’re at your wit’s end, there are plenty of banks with no fees that you can get an account with. You have plenty of options, so get saving!

Saving vs Investing: Investing for Income

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Saving and investing go together like milk and cookies, sweet and sour, and Elvis and banana peanut butter sandwiches, right?  Right.  Well, almost right.  It’s easy for us to say that saving and investing are important parts of a personal finance plan.  It’s easy for us to say that and then move on.  After all, we just said they’re important, right?  Not so fast.

Saving and Investing ARE important

They just aren’t equally important.  Heck, it’s another whole post, but even the different types of investing aren’t equal.  Just as important as saving and investing together is the concept of when to use which, and how much.  The mix of liquid savings in the form of cash accounts and CDs with the amount of your money that’s invested can be one of the most important parts of your overall personal finance plan.

Traditional advice tells us that cash accounts and CDs are the super safe way to keep your money with you, and investing, in it’s varying forms is all kinds of risky.  Investing in stocks?  Risky.  Investing in pork bellies?  Risky.  (unless you really like bacon.  Just kidding, still risky.)  But, is the amount of risk involved in investing more or less risky than leaving too much of your money in the bank to rot away at current interest rates?  How about you ask the people of Cyprus if they still feel safe having their money in the bank?

Saving vs Investing : Investing for IncomeSuccess is risky.

Few who accomplish success do so without some element of risk.  In fact, the easier the path to success is perceived, the less chance there is of truly obtaining it.  I don’t say that to seem philosophical.  I want to make a point, however.  You’ve got to have a little risk, if you want to succeed.  You’ve got to have Investments if you want to succeed financially.  And, I think the ratio of investments to savings should probably be much higher than most would suggest.

Investing for Financial Independence

One of the key tenets in a financial independence plan is that you need to replace your income in order to free yourself up to be independent of a job.  Not independent of work, but of a job.  There are, obviously, many ways that you can go about replacing that income.   Decreasing your expenses is usually a part of most plans.  But, most people’s expenses will only decrease so far.  Sure, you can go extreme, and get them lower, but for many that isn’t what financial independence is about.  Even with your expenses decreased as low as you’re willing to take them, you’ve still got to replace the income to pay those expenses.  Investing can be a very good way to get started towards replacing your income.

Investing for Income

In order to replace income with investing, you’ve got to invest for income.  You probably try and do that by becoming a super successful day trader and making up the income in profits from all the great deals you made.  First, find yourself a few super successful day traders who have done that.  Come back when you’ve given up.  If you’re going to invest for income, it’s got to be reliable.  It can’t rely on your ability to find a good bargain and then sell it at a massive profit a few days later.  There are traders who are still waiting on Facebook to make a comeback so they can even get their money back.  Reliable income is the key.  For this, we need investments that are steady, don’t require the continued increase in value of the stock, and also don’t require us to sell like a fiend in order to create the income.  What are these mysterious investments, you ask?  Dividend stocks.

Dividend stocks are stocks that pay a dividend on each share of the stock that is held.  The amount of the dividend can vary, but there are many that you will find that pay dividends in the range of 2-4%.  Depending on the policy of the company, they usually pay quarterly, but there are some that pay monthly and yearly.

Dividend stocks aren’t the only way to invest for income, however.  Investing in peer-to-peer lending in a program like Lending Club is one.  Rental real estate is another.  A business can even be a way to invest for income.  Each has varying levels of passivity, or the amount of direct interaction on your part to earn the income.  A business that you run can mean well over 40 hours a week of direct interaction to create the income.  Something like Lending Club or rental real estate can be brought down to a level that borders on passive income entirely.

Savings vs. Investing

With any investing tool, whether it be dividend stocks, lending, real estate, or some other instrument, there will be risk.  With risk usually comes reward.  I’ve been earning over 8% return on my Lending Club portfolio.  Dividend stocks can lose value, or even stop paying dividends.  The real estate market can dry up, and you can have problems finding renters.  Risk is inherent.  Unless you want to directly trade your time for money (call it a job), you’ve got to take on a little risk and begin setting yourself free.

Savings shouldn’t be shunned completely.  I still believe that an emergency fund is an important tool.  I still covet a debt free lifestyle.  But, once my debt is paid off, and my emergency fund is full, you can bet the rest will go towards investing for income, and building my wealth towards financial independence.

How about you?  What is the role of savings in your personal finance journey?

Original img credit: Two men with pipes posing as boxers / Deux hommes, pipes à la bouche, prenant une pose de boxeur by BiblioArchives / LibraryArchives, on Flickr