Hamster Revolution Email and Electronic File Management System

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Back in May of this year, I wrote about my new favorite financial organization/filing system that I implemented after reading David Bach's book, Smart Couples Finish Rich (see the following link for details - My Personal Finance Journey Financial Organization System).

Since implementing this file folder system, my ability to store and locate hard copies of my financial papers has improved dramatically.

Almost equally as effective for me as this hard copy filing system has been an email and electronic filing and management system, created by using advice received in two books - Getting Things Done by David Allen and The Hamster Revolution by Mike Song, et al. Since this system has improved my life and time management ability significantly, I wanted to share it with you all as well.

Today, we'll start with the portion of the system that I obtained from reading The Hamster Revolution. 

Overall, the book (which I highly recommend you reading - just click on the link above to buy a cheap used copy from Amazon.com for $0.02!!!) is organized in to 5 sections, as described below.

• How to reduce email volume
• How to improve email quality
• Organizing information (email, hard drive, shared drives, teamsites, anywhere!)
• How to coach others on email
• Answers to further questions

To read the complete summary of the book, click on the Google Docs / Word document link below.

Google Docs - Complete Outline/Review of Hamster Revolution Book

While all of the book's sections offer great advice, I wanted to focus mainly on the "Organizing information" section, as this is what has contributed the most value to my life.

The section starts off by describing some of the challenges of organizing and finding information effectively. Several of the main challenges are listed below.

• Too many overlapping categories and/or categorization methods exist.
• There are too many primary folders in your system.
• Different shared drives, personal drives, and team sites employ mismatched folder systems, making it impossible to know where to store or find the information when you need it.

To combat this insanity, Mike Song proposes a bulletproof system that I have implemented (and would recommend that you try out). 

It's called the COTAP System.

What is the COTAP System exactly?

The COTAP System is an email and data/information management system that Mike invented after studying many different types of business and what sorts of information flows within these organizations.

What he found was that in all industries, all email and/or information fits in to one of 5 categories - Clients, Output, Teams, Admin, and Personal. I am a big believer in this philosophy. I have found that both at home and at work, all of my information really does fall in to one of these 5 categories.

Furthermore, I have found this system to be effective not only for my emails but also for organizing my electronic files on  my hard drive.

How do I implement the COTAP System?

To create the COTAP folder system on your computer, simply follow the guidelines below, creating folders for each main category and subcategory.

• Clients – Your team's internal or external clients
• Create a subfolder for each one of your clients
• Output – Your team's products and services
• Create a folder for each product, project, or service you are involved in.
• Also create "general output" folder
• Teams – Your team
• Create a folder for each team of which you are a member.
• Examples would include budget teams, new pharmaceutical drug team, etc.
• Admin – Your non-core-job responsibilities
• Create a folder for each non-core-job responsibility
• Examples would include training, benefits, etc.
• Personal - Personal information that is non-job related.
• Examples would include Toastmaster's public speaking club, Jonny's karate schedule, cycling team, etc.
• After creating all of your respective folders, place desktop shortcuts to all of your main COTAP folders so that you can access them quickly.

Note: If there is an overlap and you don't know where something should go, default to the order of COTAP listed above.

Show below is a screen shot/example of the COTAP system set up on my Outlook email account. Proof that you can do it too!

My COTAP Folders

How about you all? What email/information organization system do you use? Are you satisfied with the results?

Have you implemented the Hamster Revolution COTAP organization system?

Share your experiences by commenting below! 

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Related articles about email and information organization at several of my favorite personal finance blogs:

The Simple Dollar - Getting Things Done By David Allen - Mastering Workflows

Weekly Roundup - Back to School Edition - Week of July 26th

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This week marks my last week in the workforce for several years, as I have resigned my current job in anticipation of going to graduate school this fall to get my PhD in Chemical Engineering (I must be crazy).

It was a very important week for me financially because I received my last real paycheck and more importantly, closed on my condo where I'll be moving for graduate school. The moving truck comes this Monday, August 2nd! Exciting times!

It was also a very active week for My Personal Finance Journey. Five of our articles were selected to participate in blog carnivals throughout the blogosphere.

Check out the posts that were selected, as well as the other very informative articles that were selected in the contests, by clicking on any one of the links below.

• Why Following Hot Mutual Fund Managers Doesn't Work included in the Best of Money Carnival at Canajun Finances
• Home Based Business Opportunities included in the Carnival of Financial Independence at Ditch The Boss
• How I Decided Between HMO, PPO, and POS Health Insurance Coverage included in the Carnival of Money Stories at No Debt Plan.net
• Does Being Green Make Economic Sense - Part 1 - Green and Hybrid Cars included in the Carnival of Personal Finance at Beating Broke
• How Does Home Ownership Fit in to Your Overall Asset Allocation? included Real Estate Investing Carnival at The Income Blog

Additionally, listed below are several blog articles that caught my eye (and I commented on) throughout the week. Stop by their respective blogs and take a look!

• You Need an Emergency Fund by Moolanomy
• Afraid to Retire by BucksomeBoomer
• Tax Deductible Moving Expenses by Five Cent Nickel
• Alternatives to Blogger's Default Comment System by WebUpd8

Keep on learning!


How about you all? Did any big events in your financial lives happen this week? Did you participate in any of these blog carnivals?


Are there any blog carnivals I am missing submitting articles to? Let me know!

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Help a Reader: To Refinance a Car or Not?

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Here's an email I recently received from a reader:

I have a financial question for you. 

Currently, the interest rate of my car loan is 5.75% per year. And, I am wondering if I should refinance my car loan with a 3.99% interest per year loan that I found with my company's credit union.

 I have paid off 50% of the original loan amount, and only have ~$7,000 left to pay.

At the current rate I am paying off the loan, I will pay off the loan completely in 3 years from now. I have a good job and a steady paycheck each month, and am 23 years old.

Would it be a good financial move for me to refinance with this lower interest rate loan? Any help would be appreciated.

What's your advice for her?

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Related articles about helping readers at my favorite personal finance blogs:
Free Money Finance - Help a Reader - Paying off a House
Free Money Finance - Help a Reader - To Refinance My Home Or Not

What Would You Do If You Had Credit Card Debt?

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In previous posts on this blog, I have talked a lot about the Account Hierarchy being the most important article I have ever written.

Relating to this topic, I have written posts on how saving for retirement, home ownership/mortgage payments, student loans, and emergency funds all fit within this prioritization.

I have also given real life examples of how I respond to the Account Hierarchy as I track my portfolio and net worth each month.

However, one thing I have not done is explain a scenario of how I would adjust my action steps with money if I did have credit card debt. As such, this will be the topic of today's post. 

Where does credit card debt fall on the account hierachy?

To start off, let's just get an idea of where credit card debt falls on the Account Hierarchy. Looking at the link, paying off credit card debt falls as the 3rd highest priority, only trumped by paying for health insurance and ensuring that you have an adequate emergency fund.

What's the big deal? What makes credit card debt so bad?


A recent guest post (A Credit Card Debt Saga - And How I Survived) described in bloody detail what contributes to making credit card debt the worst debt we can have.

However, the long and the short of it is that this type of debt is bad because 1) credit cards carry high interest rates and 2) the interest is compounded daily.

How I would handle credit card debt


Now that we've gotten through the introduction of the topic, I wanted to walk through an example of how I would handle tackling credit card debt, if I was unfortunate enough to have accumulated it.

Assumptions
According to CreditCards.com, the average household credit card debt is ~$16,000. Wow!!!! This is incredible.

We'll assume that this is the amount of credit card debt that I racked up with some emergency medical treatment I received while being airlifted off of the back country slope of a skiing mountain  in Colorado (not covered under insurance). We'll assume that I was completely free of credit card debt before this happened.

Additionally, we'll also assume that I make an income of $50,000 per year ($4,200 per month) and do not pay taxes, for simplicity.

Action Steps
As you might have guessed, to tackle paying off this balance, I would start with the highest priority in the Account Hierarchy and work my way down from there.

• Priority #1 - Make sure that I have health insurance.
• Check - I currently have health insurance through my employer-sponsored PPO plan. Move to next priority.
• Priority #2 - Ensure that I have an emergency fund of sufficient amount to cover my expenses.
• Check. Move to next priority.
• Priority #3 - Pay off credit card debt.
• Ok - I know I need to pay this off. So, let's skip this one and come back to it for now.
• Priority #4 - Pay off monthly mortgage payment.
• Check. Move to next priority.
• Priorities # 5-9 - Involve investing in your employer's 401K, an Individual Retirement Account, and an individual taxable mutual fund account (in that priority order).
• Before getting hurt in the skiing accident, I was contributing 25% of my monthly salary ($1,041) to max out my 401K. 
• On top of that, I was contributing another 27% of my monthly salary ($1,134) to a Roth IRA and taxable mutual fund account.

By looking at this, if I maintain my current savings pattern, I will be in direct violation of the Account Hierarchy because I will be saving for retirement and long term needs instead of paying off my high interest credit card debt.

To remedy this, I would stop, that's right - STOP, contributing any money to my 401k, IRA, and taxable mutual fund account. This would free up $2,200 per month that I can put towards paying off my credit card debt. Of course, I would have to continue paying my mortgage payment, seeing as I need to have a place to live.

In addition, I would also look in to taking out a home equity loan (usually have lower interest rates, and the interest is tax deductible) to pay off the credit card debt.

So, that's how I would handle credit card debt in that situation.

How about you all? Would you have acted differently in the scenario above?


Do you prioritize your savings/spending in a similar order as this? Let me know!

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Related articles about credit card debt at several of my favorite personal finance blogs:
The Digerati Life - A Success Story About Paying Off Credit Card Debt
Blogging Away Debt - How I Reduced My Credit Card Interest Rates

First Time Visitor Start Page Now Ready!

My Personal Finance Journey Homepage

Recently, while reading an article by Bucksome Boomer about her experiences at the Savvy Blogging Summit Conference in Breckenridege, CO (I know what you're thinking - what a sweet place to have a conference!), I came across a recommendation that she took away from the conference that was to make a "first timers," or "start page" on your blog to make it more accessible for newcomers surfing the web.

I thought this was a great idea, and today, I put together a first pass try at the start page.

The page can be accessed at any time from the link at the top of the page. I have also copied the link below.

My Personal Finance Journey Start Page

Click on the link and give it a try!

Is there anything else that should be included that I might have overlooked? Let me know by commenting below!

Your feedback helps!

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Personal Finance and Investing Magazines

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Today, as I was reading Burton Malkiel's book entitled, The Random Walk Guide To Investing, I came across a brief look at several new financial products the government was developing when the book was published back in 2007.

This got me thinking, "Do I need to stay more up-to-date with financial planning and personal finance news?" The more I thought about it, the more it became clear to me that I needed to take some action on this.

Therefore, when I was making my weekly trip to the grocery store today, I went to the magazine aisle to see if there were any good sounding personal finance magazines with subscription prices that would not put me too far behind in the bank account.

As it turned out, the subscription prices for 3 magazine were fairly cheap. The magazines and subscription prices are shown below:

• SmartMoney Magazine - $10 for 1 year
• Kiplinger's Personal Finance magazine - $12 for 1 year
• Money (1-year) - $19

After returning home from the store, I looked online quickly for a review and/or an opinion on these magazines. I found a very useful article featured at Get Rich Slowly.org (link is shown below).

Which Personal Finance Magazine is Best? - Get Rich Slowly

JD Roth (author of Get Rich Slowly) states that even though these magazines have a flaw here and there, he always learns something new from them. 

Because of this review and the prices being low, I purchased subscriptions to these magazines tonight. I'll put a reminder on my calendar to post an update in a few weeks to tell you what I think of the magazines!

How about you all? Which money/investing/personal finance magazines do you have a subscription for? 


How did you decide which one to pick?

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Does Being Green Make Economic Sense? - Part 2 - Recycled Paper and Reusable Batteries

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In Part 1 of this series, we saw that it does not (unfortunately) make economic sense to purchase a hybrid car, unless there is a tax credit that is specifically associated with the make/model for which you are searching.

Continuing with this topic, today, I'd like to analyze whether or not it is economically beneficially (or at least not detrimental) to 1) purchase recycled paper and 2) use rechargeable batteries.

So, let's get started.

Is it economically beneficial to purchase recycled paper? 

Recently, as I was reading an article on the internet, it mentioned that the majority of major corporations nowadays (even in the "green" era) are still using non-recycled printer paper for the their managed printing jobs company-wide.

This got me thinking what the driver was behind this and what the difference in price is between recycled and non-recycled paper. And more importantly, is the gap indeed big enough that it would cause a company to go with the non-environmentally friendly route?

 To do this analysis, we need to get the prices of several types of paper. In looking around Staples.com, it appears that a good standard order size is 20 lbs / 5000 sheets of paper. Using this as the common size, I found the following prices on the Staples website.

• Staples 100% Recycled Paper - 20 lb Case - $56.99
• Staples 30% Recycled Paper - 20 lb Case - $45.99
• Staples Regular Non-Recycled Paper - 20 lb Case - $37.99

Geez, this is not looking to promising for recycled paper. If you wanted to purchase 100% recycled paper, you would be committing to paying nearly a 50% premium! What's goin' on here?

So, let's now look at the difference in cost of using recycled and non-recycled paper using a real world example.

According to the link below, University of Washington uses 625 tons of paper per year. In terms of lbs, this equates to 1,250,000 lbs of paper. Wow! This is wild, but not surprising.

University of Washington Printer Paper Usage

After running the numbers (see table below), I figured that University of Washington can save $1.2 Million by using the non-recycled paper. 

So, from the evidence we have seen here, it appears that it most definitely does not (unfortunately) make sense economically to purchase recycled paper.


To me, this is sort of sad news to hear. However, I don't mean to get every one down. I feel that by having this knowledge in hand, we can more actively work towards creating a solution for this.


At this point, you may also be asking yourself, "why does recycled paper cost more than non-recycled?"

As far as I could find, the main reasons for recycled paper costing more are 1) there isn't as much supply of recycled paper (as in we has individuals need to work more at recycling all of the paper that we can) and 2) the supply chain for recycled paper is not as established and profitable yet as normal, non-recycled paper. Since it is not as profitable, the paper companies have to pass on the added cost to the consumers for now.

A quick side note/question: I recently heard somewhere that even though recycled copy paper/writing paper is more expensive than non-recycled, the recycled version of toilet paper is actually less expensive. Can anyone validate this?


Ok, so now on to our 2nd topic of the day...

Is it economically beneficial to purchase rechargeable batteries?


Several years ago, I purchased a pack of Energizer Rechargeable Batteries with the intention of using them to replace regular disposable AA batteries around the house.

I have used them every-so-often, but I always seem to find myself mixing in the use disposable AA's either due to convenience, or the fact that regular AA batteries were available wherever I was at the time I needed them. I figured that by doing a good job investigating this today, it would not only educate me, but also help you all reading this as well.

To do this, as is usually the case, we'll need to obtain pricing information for 1) rechargeable AA batteries and the associated charging device and 2) regular dispoable AA batteries. Both will be the same brand, Energizer, and we will assume that electricity costs involved with recharging batteries are negligible, in order to simplify the comparison.


Given these assumptions, I found the following prices shown below for rechargeable batteries:

• 24 Energizer Rechargeable Batteries - $78
• I chose 24 AA batteries because this seemed to a be a good estimate of the number of AA batteries I have in devices at my house at any one time.
• Battery Recharger - $32
• Total price = $110
• From the information shown at the product description, these batteries can be recharged 250 times, and each charge features 2,500 mA-hours of run time.
• This equals 625,000 mA-hours of total run time.

For regular AA Energizer batteries, I found the following information:

• 24 Energizer AA batteries = $15
• 2,450 mA-hours per battery - Energizer.com
• 625,000 mA-hours / 2,450 mA-hours per battery = 255 batteries total
• 255 batteries total x $15 / 24 batteries = $159 total

Ok, great! So, finally, we have found that it does make economic sense to purchase rechargeable batteries/be environmentally friendly. Great news! You save $50 in the long run by purchasing rechargeable batteries.


In the next Part of this series, we'll look at the different ways that you can make your home environmentally friendly and see how the financials stack up! Until the next time!


How about you all? Does the company you work for use recycled paper? Do you use recycled paper at home? Do you use rechargeable batteries?


Are there any incentives that I might have missed reading for using environmentally friendly products?

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Related articles about green products at several of my favorite personal finance blogs:
Why Recycled Paper Costs More - Money Changes Things
Save Money on Toilet Paper - Ultimate Money Blog

Does Being Green Make Economic Sense? - Part 1 - Green and Hybrid Automobiles

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It is clear these days to most people that being "green," or living in a way that is not harmful to the environment, is the appropriate course and absolutely the right thing to do.

However, are we at a point yet that it makes sense economically to do so? In other words, are you punished economically by your urge to live properly?

In my opinion, if being green is truly ever going to be adopted by the majority of the population, it has to be made financially beneficially to do so (even though I wish it weren't this way - it is just the way things are).

In this series, we will go through several analyses to take a look at if you are rewarded financially (or at least not punished by spending more) for living "green".

Today, in Part 1, I want to take a look at the interesting subject of if buying "green" / hybrid cars is financially equivalent, more expensive, or less expensive than buying a regular gas-powered car.

To perform this analysis, we'll compare three new cars - a Toyota Prius, a Toyota Corolla, and a Toyota Camry.

How does purchase price compare?

To start off, let's get an idea of how much each of these cars costs.

After examining the prices at the links below from Toyota.com for the most basic models of all of these cars, we find the results below.

• Toyota Prius II = $22,800
• Toyota Corolla = $15,450
• Toyota Camry = $19,595
• It is also interesting to note that the hybrid version of the Camry is $26,400. Quite a bit more expensive than the regular car!

Source Information

Prius Hybrid Price and Gas Mileage - Toyota.com
Camry Price and Gas Mileage - Toyota.com
Corolla Price and Gas Mileage - Toyota.com

So, to summarize, it looks like we will have to spend an extra $3,205 to purchase the basic model of the Toyota Prius over the Camry and an extra $7,350 over the Corolla.

How does the gas mileage compare?

To see if this makes economic sense, we need to now know what sort of gas mileage each car gets. Using the references above from Toyota.com, we find the following gas mileage results. For simplicity, I have taken the average of the city and highway gas mileage rated by the manufacturer.

• Prius average city/highway gas mileage = 50 miles per gallon (mpg)
• Camry average city/highway gas mileage = 28 miles per gallon (mpg)
• Corolla average city/highway gas mileage = 31 miles per gallon (mpg)

Do you get any tax benefits or other financial bonuses for owning a green car?

As a matter of thoroughness, I also want to make sure to include any kind of bonuses you get from owning a green car (tax credits, etc).

I was fairly disappointed to find out that the tax credits you are eligible to receive from purchasing a hybrid vehicle are becoming less and less common.

In fact, according to the links below, the Ford Fusion and the Mercury Milan hybrids were the only cars that were eligible for a tax credit in 2010. The Prius has not been eligible for this credit since 2004. Sad...

Alternativefuels.com - Hybrid Vehicle Tax Credits
Hybridcars.com - Federal Incentives for Environmentally Friendly Cars

How long would you have to own the Prius to break even financially?

So, with no tax credits, we will have to rely on gas savings only to see if buying an environmentally responsible car makes economic sense.

To analyze this, we'll have to first lay out some assumptions to use.

Assumptions

• Car will be driven 1,000 miles per month, or 12,000 miles per year.
• The cost of gas is $2.50 per gallon.
• Prius gas mileage = 50 mpg, Camry gas mileage = 28 mpg, Corolla = 31 mpg.

Results of Analysis


Due to the higher fuel economy with the Prius, given the assumptions above, it equates to a $472 per year cost savings in fuel purchases with the Prius over the Camry and only a $367 per year cost savings over the Corolla.

With this magnitude of cost savings per year, it will take almost 7 years of owning the Toyota Prius to break even financially over the Camry, and a whopping 20 years over the Corolla.


The details of this calculation can be seen in the Google Docs spreadsheet below that I put together.
Google Docs - Does it Make Sense Financially to Purchase a Toyota Prius or Camry?


This is quite an unfortunate find due to the fact that after you have owned a car for 7 years (let alone 20 years), you are most likely getting ready and/or thinking about selling it.

Bottom Line

So, from today's investigation, I think our findings can be summarized as follows

• 1) "Green" cars are much more expensive than regular cars
• 2) Even though hybrid cars get good gas mileage, it still takes quite a few years to recoup your investment
• 3) Purchasing a "green" car does not make financial sense in 2010 unless you are able to receive a tax credit for doing so.

Are there any other costs to maintain a hybrid car that I missed? Are there any other financial benefits of hybrid cars (tax breaks from government, etc) that I might have missed?


If you performed an economic analysis similar to this when you bought a car, what was your line of thinking? 


Share your thoughts by commenting below!

Part 2 of this series analyzes if it is economically justifiable to use recycled paper and use rechargeable batteries.

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Related articles about green living at several of my favorite personal finance blogs:
Is a Hybrid Worth It? - Omninerd.com

It's a Hot Summer - Weekly Roundup - Week of July 19th, 2010

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Howdy, everyone! I would like to thank you for visiting My Personal Finance Journey, and being a part of it – whether you’re commenting or reading. Both are equally important! I appreciate your interest, and hope you keep coming back as we continue to grow.

This week was a big week for the blog! We joined the Yakezie Challenge to give us more incentive to improve the quality of the content and overall experience.

Going along with this, as mentioned several days ago, I created a short questionnaire (can be filled out at the link below) as a way for you all to give me feedback on how I can improve the site. It really helps me! So please take a moment and do that if you haven't already!

My Personal Finance Journey 1 Minute Reader Feedback Questionnaire

Here are some articles that caught my eye this week/that I commented on, that I consider to be recommended reading:

• Some Areas of the Country Producing More Millionaires Than Others at Freemoneyfinance.com
• Do You Need All of These Insurance Policies? at Squirrelers.com
• Stable Value Funds at MyMoneyBlog.com

My Personal Finance Journey was featured in the following carnivals and roundups:

• ETF's vs. Index Mutual Funds - Which Are Better? was included in the Carnival of Financial Planning at TheSkilledInvestor.com
• What Taxes Do You Have to Pay on eBay Sales? was included in the Carnival of Personal Finance at Nerdwallet.com
• This week was our blog's first week to submit to blog carnivals, and articles have been submitted for 5 carnivals that publish on Monday, July 26. So, keep an eye out next week for those! Should be a good time! 

Enjoy the weekend!

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Related weekly roundup posts at several of my favorite personal finance blogs:
FreeMoneyFinance - July 19th Weekly Roundup
Squirrelers.com - Weekly Review, Updates, and Favorites

A Credit Card Debt Saga – And How I Survived

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Today's post comes to use from Kathryn, a dedicated My Personal Finance Journey reader and a valuable contributor to the commentary on a lot of posts during the past 6 months. Enjoy as she shares her story of how she got out of credit card debt.

A Credit Card Saga - And How I Survived

Background

The company I work for is sending me to England on a 6 month assignment. Because of this, I called the bank to ask them to place a note on my account that says that I am living in England. 

As part of this conversation, the banker informed me that I was pre-approved for a Wells Fargo credit card. While it would be nice to have a credit card while overseas, I had to respectfully decline this particular card on principle. The rate, following the introductary APR of 0% for 12 months, skyrockets to a variable 17.5%! Also, if you miss a payment, the variable APR jumps to 27.3%! Wow. That's a ton of interest.

People often talk about sub-prime mortgages as a major reason for the current economic woes. Little has been discussed about credit cards, which appear to be equally as predatory. To see how this type of credit card could truly bite you, let's use a situation from my college days:

The Saga Begins - Get Ready

When I was a senior in college, in my last semester, I had a job lined up and my parents informed me that they would no longer be paying for my living expenses. Without any money secured, I applied for a credit card to use as a stop gap until I started making real income. I would not advise anybody to do this, for the reasons that I will discuss below. 

I charged approximately $3000 in living expenses over a 6 month period, and paid the card minimum ($20) each month. The card interest rate was 0% for the first 6 months, and then it jumped to 11 APR%. This particular credit card was compounded monthly.

It is important to note that the rate that the credit card company gives you is not exactly the actual interest rate. A more adequate way of characterizing the actual rate for a stable balance over a year period is call the EAR, or effective annual rate.

Let's take a moment to explain what EAR is to get everyone on the same page. 

• You can convert your APR to an EAR by using the following formula: EAR=((1+APR/n)^n)-1. n represents the number of compounding periods in a year. 
• Thus, a credit card with an 11% APR compounded monthly is actually earning interest of around 11.6% per year. 
• The Wells Fargo credit card I mentioned above has a 17.5% interest rate, compounded daily. That means the effective annual rate is 19.1%. 

So, as you can see, a monthly compounding would be closer to the actual rate than a daily compounding. For the penalty rate of 27.3%, the effective annual rate with daily compounding would be 31.4%. Yikes!

Let's say that in the first 6 months, I charge $500 per month to my credit card and pay the minimum off. This would mean that at the end of the 6 months (in the introductury period), I have a balance of $2880. Under the credit card I used, if I continued to pay the minimum, and didn't charge anything else, my balance would continue to increase as follows (note that I am using EAR/12 as an estimate for the monthly interest):

• Month 1: $2880 (1+(0.116/12)) - $20 = 2887.84
• Month 2: 2887.84 (1+(0.116/12)) - $20 = 2895.76
• Month 3: 2903.75
• Month 4: 2911.82
• Month 5: 2919.97
• Month 6: 2928.19

Okay...so now, in 12 months, I have charged $3000, but the total amount I've committed to giving the credit card company is $3168.19. And this is assuming I have that much money to pay the credit card company after 12 months, otherwise the balance will continue to increase. Honestly, this credit card isn't too bad because of monthly compounding and the relatively low APR.

However, let's do the same scenario under the Wells Fargo credit card with the 17.5% rate and daily compounding. Let's say I have the same starting balance of when the interest rate kicks in. What does the amount of money I have committed to the credit card company come out to after 6 months? $3375.09. Wow! That's a $375 profit for the credit card company.

The problem that people get into with credit cards is that they rack up a large balance and then don't have the means to quickly pay it off. Once the balance gets higher, the interest starts going higher. And then you gain interest on that interest. The other problem is that variable rates can change at any time. Just because your credit card has a 17.5% rate today doesn't mean it won't have a 27% rate when your check gets lost in the mail.

As another scenario, say I'm a student who has put up $3000 in credit card debt over several years. What if I have the means to pay off $200 to this credit card per month? Under a normal, no interest situation, it would take me 15 months to pay my credit card off. However, say I pay my $200/month, but at month 6, the check gets lost in the mail. How long would it take to pay off this credit card? 18 months. And I've paid over $500 in interest.

What if I only have the means to pay $100 to this credit card per month? No interest, 30 months to pay it off. Under the scenario above, it would take 47 months and almost $1700 in interest. That's over 50% of what I charged originally!

My Debt Repayment Method and Some Lessons Learned to Pass On

So, there are a few lessons to be learned. 

• First, if you have gotten yourself into trouble with credit cards, you need to pay the largest possible amount of money you can pay to that credit card every time. In the scenario above, an extra $100 per month decreased the interest by over $1000 and allowed payoff much quicker. That will reduce the interest that your interest is earning. 

• Second, try to find credit cards that compound monthly. Apparently, these are few and far between these days. 

• Third, convert your APR to an EAR to get a better feel for how compounding will affect your interest rate. Be careful with how you use credit cards and never spend more than you earn.

How about you all? Do you have any credit card debt stories to share? Have you ever made purchases on a credit card knowing that would were not going to pay it back any time soon?

Please share by commenting below!

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Related articles about credit card debt stories at several of my favorite personal finance blogs:

20SomethingFinance - How to Get Out of Debt - Stop the Bleeding

Money Reasons - Why Keeping Up with The Joneses Is Not A Good Decision

Review of Change in eBay Fee Structure - No Listing Fees

My Personal Finance Journey Homepage

Today, I got an email from eBay's Seller Central stating that I can now, "make easy money selling items on eBay because you can now list items for free."

Needless to say, I was fairly skeptical about this ad. However, I checked it out on eBay's website, and sure enough, it's true! They are now offering free auction style listings. However, we first want to make sure to check up on the details before we jump for joy.

This further strengthens my statement from a previous post about eBay being very seller friendly/oriented, generally making eBay and better place to sell your items online than Amazon due to several reasons.

What are the details of this deal?

According to the links below from eBay, you pay no listing fee for the first 100 items per month that you list on eBay for under $1.

It is very important to pay close attention to the restrictions of this listed in bold above.

• Details of Selling on eBay
• eBay Selling Fees

Key takeaway from this deal


For me, the key takeaway from this change on eBay fees is that this will significantly reduce the financial barrier to listing household items that I simply want to unload and sell (when I don't really care what the minimum price is that is sells for).

However, if I am running an eBay business, the $0.99 maximum starting bid could get me in trouble by not allowing me to make any profit from a sale, in the event that not enough bids come in.

How about you all? Will this change in fees influence you to sell more on eBay? Will it influence you to steer away from sales on Amazon?

Share your thoughts by posting a comment below!

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Help a Reader - Can You Skip Out on Federal Taxes and Donate Income Directly to Charity?

My Personal Finance Journey Homepage

Recently, a reader and friend asked me if I had ever investigated much in to donating money to charity.

As soon as she asked me this, I was thinking to myself, "This shouldn't be too hard to answer the follow-up questions, seeing as how I had investigated this topic on several occasions throughout the year."

Note: To view the previous posts I have written on charitable contributions, click on either of the links below.

• General Overview of Donating Money - How Much, Where to Donate and Tax Benefits
• What Percentage of Your Charitable Contribution Goes to Operating Expenses?

However, as I constantly am reminded by her follow-up question, I most certainly do not have all of the answers. Not by a long shot!

What she was wondering was if it was possible to legally bypass paying a large portion of federal income taxes up front, and donating the would-be tax amount to a registered charity instead.

"This is a very good question!" I said, and mentioned that I would start looking in to it.

 So, in other words, my friend is wondering if she can donate money pre-tax to charity, similar to a payroll deduction on a pre-tax basis for your 401k retirement account.

Results of Investigation

After searching around for a while, the closest article I could get to answering this question is the one from EchoDonations.org, at the link shown below.

EchoDonations.org - Is it Possible to Donate with Pre-Tax Dollars

The article states that charitable donations are not listed as an eligible pre-tax deduction by the IRS (a list of eligible deductions is shown below), and therefore have to be subject to Social Security and Medicare taxes before being eligible for donating.

Eligible Pre-Tax Deductions

• Dental Insurance
• Medical Insurance
• 401K Contributions
• Vision Insurance
• Flexible Healthcare Spending Accounts

So, after looking at the evidence, it is looking like I will have to report to my friend that she cannot contribute to charities with her pre-tax funds.

Two Other Interesting Findings


As I was searching for an answer to my friend's question, I came across two other interesting things that are worth sharing:

• First, I found an Austrailian website, CareAustralia.org, that says that charitable gifts to help their efforts are made on a pre-tax basis.
• Therefore, it makes me think that donating money pre-tax is possible in other countries. Does anyone have experience with this?

• Second, I found that if you are over the age of 70.5 years old, you can make a Qualified Charitable Donation from an IRA using your pre-tax funds in the account. See the link below from Ameriprise for more information about this.
• Ameriprise.com - Charitable Tax Donations

How about you all? 

Have you tried and/or been successful at donating money on a pre-tax basis? Did you meet any obstacles? Are any of the ex-United States readers out there able to do this?

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Related articles about taxes and donations/charitable contributions at several of my favorite personal finance blogs:
ChristianPF.com - See the Impact When You Donate to Charity
Smartmoney.com - Investigate Your Charity Before You Donate

Help a Blogger: Reader Feedback Requested on My Personal Finance Journey

My Personal Finance Journey Homepage

In order to go along with the spirit of the Yakezie Challenge (which I recently joined), I am dedicated to improving the quality of this site so that it best serves you all, the readers.

In order to make sure I am doing this as best I can, I created a reader feedback questionnaire, which can be accessed at the link below. 

The questionnaire is less than 10 questions, and will only take 1 minute to fill out. If you have a free moment during the day, please stop by and submit your feedback. It will very much help me. Remember, the best feedback is not totally positive in nature, but honest opinions about how I need to improve.

My Personal Finance Journey Feedback Questionnaire

The questionnaire will be placed, and can always be found going forward, on the Contact Me page link in the top menu. I've attached this link below as well.

Contact Me - My Personal Finance Journey

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Microloans Part 2 - How Should Microloans Be Treated in My Overall Financial Plan?

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Yesterday, in Part 1 of this series, we explored a general overview of what microloans/microcredit is and how you, as a normal human being, can get involved in them. If you missed Part 1, click on the link below to read up!

Microloans Part 1 - What Are Microloans and How I Invest in Them?

So, you now know what microloans are, where you can access them, and what the risk are. You are ready to invest.

However, the question then becomes, how do these loans fit in to my overall financial plan?

More specifically, are they donations? Are they play money? Are they fixed income investments? Are they equity? How do they fit in to my overall asset allocation?

Whew...those are a lot of questions! Let's take things one question at a time before my head starts to spin!

Are microloans fixed-income investments?

Investopedia defines a fixed income investment as follows:

An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. Unlike a variable-income security, where payments change based on some underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance. Investopedia.com - Fixed Income Securities

So, according to the definition above, microloans are fixed-income investments.

However, the real question is if they are the type of fixed income investments that we would want to include in our overall asset allocation.

According to Part 3 (see link below) of our previous Investment Strategy Series, the only 3 types of fixed income investments that belong in our long term portfolio are 1) cash, 2) inflated protected bonds, and 3) short term index bond funds.

Investment Strategy - Defining Your Specific Mix of Fixed Income Securities

Since microloans fall in to none of these categories, they cannot be grouped in to our fixed income asset allocation.

Are microloans equity investments?

No - they are fixed-income investment, as evidenced by the definition above. They are just not the type we need to build our long term portfolio.

Are microloans donations?

Absolutely not (at least not technically). Microloans are not donations because the money you loan out is promised to be repaid, with interest added.

Additionally, as we saw in Part 1, micrloans are fairly reliable, displaying a 97% repayment rate.

Because of this, it is not definitely not a donation, by definition.

Are microloans play money?

As we have seen in previous posts, play money is a category for funds which we commit to use to either help us learn, enjoy life, and feel rich, and don't expect to ever get back.

While it could be argued loaning small amounts of money to the poor can make you feel rich, I do not feel comfortable grouping microloans in to this category. For my purposes, I generally reserve this category for any funds I use to invest in individual stocks.

So, how do microloans fit in to my financial plan?

After doing some thinking, I believe that I will integrate microloans in to my "Making a Difference" life value that I discovered in Part 2 (can be accessed at link below) of creating a Purpose Focused Financial Plan.

Determine and Take Action on Your Life Values

Currently, this year's goal for my "Making a Difference" life value is to donate 5% of my income to charity.

However, I think it would fit incredibly well to add a goal in here to partcipate in a microloan of $500 to help people in poverty in Latin America.

Yes, I think that works! I just updated Part 2 to include that. This was a cool exercise!


How about you all?

How do you treat microloans (if you invest in them) in your overall financial plan? Do they count as donations? Do they count towards your retirement?

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Microloans Part 1 - What Are Microloans and How Can I Invest in Them?

My Personal Finance Journey Homepage

Recently, I made my first ever microloan / microfinance investment, using a microfinance site called Microplace.

The loan, at the moutainous amount of $20, was to help finance entrepreneurs in Ecuador with their start-up businesses. These businesses include a diverse array of categories such as water-treatment processing, grocery stores, and clothing weaving.

Furthermore, I was recently reading through an article on Wealth Pilgrim about the subject of whether or not investments in "green" companies should be considered as part of your retirement money or as a donation.

As I was reading this, I began to also wonder how microloans should be treated. Therefore, I thought it would be a learning process for everyone (including me) to investigate some more about this subject.

I will address this subject in two parts.

What is a microloan?

To start off, we first need to know what exactly a microloan is.

A microloan is pretty easy to understand. It is a loan to poor individuals around the world (mostly in developing countries) to provide them funding for starting their own business.

What makes these loans different than normal loans is that they are typically in small amounts ($30-$200), have to be repaid in weekly installments (this discourages default), and typically have a short term of 3-6 months.

The individual borrowers are charged an interest rate on the loan amount until it is repaid. At the end of the loan term, the individual pays back the money to the lending institution.

Some excellent resources for additional reading material can be found at the links below from Microplace.com and Wikipedia.org.

Wikipedia.org - Microloans

Microplace.com - How Microfinancing Works

Microplace.com - FAQs for Common Questions

Who offers microloans and how can I participate?

From a personal access point of view, a microloan works as follows:

• 1) You, or another individual that has extra money that he or she wants to invest, goes to a microloan broker. This usually happens through their website. Several common brokers are listed below.
• 2) You perform a search to narrow down what you would like to invest in based on geographic location, investment minimum, and the business type/model.
• 3) The loan note is issued to you through a separate lending organization (not the broker).
• 4) The loan is repaid by the individual in the developing country to the lending organization.
• 5) The lending organization then repays you (including interest) through the brokerage house.

Several of the providers (they are officially classified as brokers and are registered as such) that I have heard about can be found at the links below.

• Microplace.com - A PayPal Company
• Kiva.org

What kind of return can I expect?

Generally, the returns of these investments of pretty low. Currently, a one year loan on Microplace.com is earning a 3% rate of return.

While this is not stellar, I consider it a very good sign for several reasons.

• First, it is probably a realistic estimate due to the increased risk with this type of investment being counterbalanced by high interest rates charged to the borrowers.
• Second, and maybe most importantly, it is currently double what I am earning on my online money market savings account (1.4%). So, it is not all that bad when you think about it!

How is the payback reliability of microloans?

As I was investigating this topic today, I was shocked to find out that microloans actually have a 97% successful payback rate.

This is truly an awesome find! I think it is also proof that people are more motivated to do well if they are treated with respect.

By giving poverty stricken individuals a loan (instead of a donation), they are being instilled with responsibility. It is a pretty cool thing!

My experience with microloans

I always like to add a little human element to my postings whenever possible. This helps it keep this blog alive and not be a dry Newsweek article.

Since this was my first ever microloan, I started with a small $20 loan with Microplace.com. I choose this broker because they are supported through eBay / Paypal, two companies I trust.

The loan note was actually issued by the Calvert Foundation. This organization is a non-profit group that issues community (meaning multiple lenders) loans to help fight poverty. Looking at their website, it actually looks like it would be a pretty cool company to work for for finance majors!

The audited financial statement of the Calvert Foundation can be accessed at the link below.

Google Docs - Calvert Foundation - My Microloan Issuer

Details of my loan are as follows:

• $20
• Repayment in less than one year (Jan 2011)
• 3% annual interest

Since I just made the investment, I haven't received any interest payments to date.

How about you all? Have you made any investments in micrloans? Did you get your money paid back on time?

How was the overall experience? Was it rewarding?

Tomorrow, we will continue with Part 2 of this series, where we will explore how microloans should fit overall in to your Purpose Focused Financial Plan and overall investment strategy.

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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Related articles about microloans at several of my favorite personal finance blogs:

My Money Blog - Microplace Loan Performance

NextBillion.com - When Microcredit Isn't the First Step

My Personal Finance Journey Just Joined the Yakezie Challenge

My Personal Finance Journey Homepage

The Yakezie challenge was started by personal finance blog, Financial Samurai, as a personal finance blog challenge revolving around the group goal of increasing the Alexa rank of every site in the group and promoting other members of the challenge.

Over time, the Yakezie Challenge has morphed into a personal finance blog group called “The Yakezie” that is dedicated to promoting high quality personal finance content on the Internet. To view the complete list of members, click on the link below.

List of Yakezie Personal Finance Blogs

I am joining the challenge because I have been blogging for some time now (a little over six months), feel I have some good articles to share, and want to meet other personal finance geeks out there that enjoy writing this stuff as much as I do.

How about you all? Does any one out there that runs a personal finance blog partcipate in this Challenge? What have your experiences been?

Did you like this article? You can get the complete text of all the latest articles at My Personal Finance Journey in your email inbox each evening by clicking the link below and entering your email address. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time.

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