Wednesday, October 20, 2010

Creativity & Finance

As a former musician, I have sometimes looked at the music industry with a sense of dismay.  Disillusioned by an apparent lack of creativity in much of what has been put in front of consumers ears in recent years, I often wondered what happened to all those creative talents, those musical "outside-the-box" thinkers who have blessed us with so much musical joy in the past?

Some of those creative minds must have gone into banking and financial services.  It is rather apparent how "creative" the financial services industry has become - creative in terms of finding new ways to circumvent new rules and to "milk" consumers.  Today's Wall Street Journal has a good example of how some companies have become adapt at finding loopholes.  Please consider: Fed Aims to Tighten New Rules for Credit

As the article notes: 
The proposed rules also address fees frequently tacked onto cards marketed to people with weaker credit histories. The credit-card law, targeting confusing offers that often drew lower-income customers to sign up for costly credit, limited fees to no more than 25% of a card's credit line in the first year.

First Premier Bank has since offered a card with a $300 credit limit and $75 annual fee, plus a $95 processing fee that must be paid before the card is used. The bank, which didn't respond to requests for comment, told The Wall Street Journal earlier this year that the 25% limit only applied to fees charged after an account was opened.
Whether you are a musician, an artist or any other consumer, you have to watch out.  Creativity is great in music and in art, but it can have its downside when you let bankers get a hold of creative thinking.

Perhaps it's time to switch roles and have artists put on a banker's head for a change.  That analytical mind would do them well and should keep them away from ridiculous terms as described above.  Don't forget it's your money.  Don't let these credit sharks get a hold of it!

Friday, October 8, 2010

A Spending Diary

Most of us are familiar with Weight Watchers through commercials or actually having tried one of their weight loss programs.  It's a great concept that works on a simple principle: "Watch what you eat".

How about using the same premise to "Watch what you spend"?

We have an easy one-page work sheet that you can use as a budgeting tool to track where your money is going. You are far more likely to save money when you see how fast the small things that you buy here and there can add up. 

Click on the image below to see the full-size work sheet...


The best way to do this on a regular basis is to combine if with another daily routine e.g. brushing your teeth. While you brush your teeth, do a mental recap of your daily expenses. This helps you remember where your money went. But make sure you write down what you spent immediately after brushing your teeth.  You should include everything, even the dimes and nickels!

After a month of tracking your expenses, go over the completed sheets and try to figure out where you spent too much money on by evaluating each expense.

As they say, seeing is believing.  Once you actually see where your money goes you may be shocked to find a number of items that were unnecessary, perhaps frivolous expenses.  But you have made the first step in getting a better grip at your finances. 

Keep the exercise going; this will help you later on in establishing and maintaining your own personal budget.

If you would like a printable version (PDF file) of our work sheet please email:

Monday, October 4, 2010

Don’t Forget: Your Bank Controls The Rates!

In most finance or investment tutorials, the interest rates and percentages typically used for scenario calculations are always a bit on the high side when it comes to the stated investing returns. Particularly in the current economic environment with record low interest rates, some of the assumptions for investment returns have to be looked at with a grain of salt.  But the main purpose of the seemingly high rates of return is to make the comparisons and examples easy to grasp.

When you examine the rates of loans, foremost the credit card financing rates, you will notice that those rates are always a lot higher than savings rates for example.  That difference is even more evident when the general interest rates are as low as they are now.  At present, you might get only as much as 1% interest on your savings whereas credit cards usually have financing rates of 20% or more.  Quite a difference...

This leads us to an important concept in the world of finance.  Without exception, the financial institutions that hold "YOUR MONEY", i.e. your bank, credit card provider or broker, create terms that work in their favor rather than in yours. Therefore, the interest you receive on your savings will never be anywhere as high as the rates charged for a loan. The difference between receiving and paying interest from the bank's point of view is easy profit. Sadly, that is not is something the banks are willing to give up for your sake.

It is therefore immensely important that you always read and understand the terms and conditions your bank is offering for their services. You too do not want to give up part of your money so that banks can make even bigger profits.