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April is National Financial Literacy Month in the United States. In most cases, schools do not extensively teach financial skills. Teenagers, highly susceptible to messages from the media, often do not have guidance from teachers, who are not trained to teach financial skills, or from parents, many of whom do not model healthy financial behavior. This series of articles at Consumerism Commentary serves to help inspire discussion about basic financial concepts. Please feel free to forward this article to someone who might benefit from a basic financial overview.
This article covers the staple financial resource for anyone seeking long-term financial stability, the savings account. This is the third article in the Money Basics series; so far this series has covered checking accounts and savings accounts.
What is interest?
Interest is a fee paid for the use of someone else’s money. Any individual or company that lends money will charge the borrower interest, always designated as a percentage like 5%. This percentage is almost always means “per year.” The most common forms of interest appear in savings accounts, where a bank pays you interest for depositing your money in the account, and credit cards and other loans, where you pay a company for allowing you to use their money for a time. Hundreds of years ago, society frowned upon charging interest, but as lending money became more prevalent for uses other than acquiring goods such as modern commerce, the stigma of interest slowly disappeared in many cultures.
The two main forms of interest are “simple interest” and “compound interest.” Simple interest is easily calculated. If you borrow $1,000 from a bank that charges you 5% simple interest, you will owe 5% more than $1,000, or $1,050, at the end of the year if you do not borrow more and do not pay back part or all of the loan. The $1,000 is a “principal.” Multiply the principal and the rate of interest (5% becomes 0.05 when multiplying) to determine the amount of interest ($50). Adding the interest amount and the principal results in the total due after one year: $1,050. With simple interest, if you don’t pay the loan back until the end of the second year, you will have another $50 to pay for a total of $1,100. Your second year of interest is based on your original principal.
Compound interest is more common than simple interest, but there are many nuances. Say the bank charges 5% interest on that $1,000 loan, but it is compounded annually rather than not compounded (simple). At the end of the first year, the first year’s interest, $50, is added (compounded) to the principal. Your second year’s interest is then calculated based on your new principal of $1,050. 5% of $1,050 is $52.50, so rather than owing $1,100 at the end of the second year, you would owe $1,102.50.
If only life were that simple. Interest can also be compounded monthly, daily, or continuously. A 5% interest rate compounded monthly, paid to you by a bank in return for your $1,000 deposit, leaves you with $1,051.16 in your bank account at the end of the year assuming no further deposits or withdrawals. That is a little more than the $1,050 of simple interest or interest compounded annually. If that same 5% interest rate is compounded daily, your ending balance would be $1,051.27. Compounded continuously, the 5% rate would also result in $1,051.27, but a fraction of a cent more than the result of daily compounding.
Banks will usually describe their compounding method in the fine print, but this is only a minor concern for savings accounts, as I’ll explain below.
Don’t be misled by interest rates and terminologies
You would think that all financial terms would carry the same definitions regardless of the circumstances in which they are used. But there is some confusion when comparing interest rates for loans with interest rates for savings accounts. Indeed, there is further confusion when comparing savings account interest rates from one bank to another bank. Here are some tips for discerning the differences.
Loans, like mortgages, are often advertised by interest rate. But sometimes, a secondary rate, is also given. The first rate on the advertisement is the nominal interest rate and the second rate is the effective interest rate; the true cost of borrowing the money including the results of compounding as well as any fees that may be charged. Consider the mortgage loan advertisement I found online yesterday.
This ad lists an interest rate of 4.625% but the true annual cost is actually 4.879%. This advertiser calls the nominal interest rate the “rate” and the effective interest rate the “APR” (annual percentage rate), and this is common terminology for loans. Lenders are required to clearly display the true annual cost of a loan, the APR, but this often just leads to more confusion.
Unfortunately, savings accounts reverse part of this word usage pattern. A savings account’s APR usually refers to the nominal interest rate, and the true annual result, after compounding based on that particular bank’s method, is called the “APY” (annual percentage yield). For example, in our continuous compounding method mentioned above, while the savings account’s interest rate is 5%, the APY is closer to 5.127%. When banks advertise their savings accounts, they usually include the APY, leaving the nominal interest rate to be found only in fine print if anywhere. The APY is a standard metric that makes it easy to compare savings accounts across banks regardless of the type of interest, and I use APYs to compare high-yield savings rates here.
If you are thoroughly confused, you can always head to dinkytown.net, which offers calculators to help you determine a loan’s APR (true annual cost) if you know the loan’s (nominal) interest rate and fees and to help you compare how much more you would earn by switching to a savings account with a higher interest rate (APY).
Albert Einstein probably never called compound interest “the most powerful force in the universe,” though this quotation or one similar is often attributed to him. If you want to “get rich,” all you need is compound interest, preferably at a rate above inflation, and lots time on your side.
April is National Financial Literacy Month in the United States. In most cases, schools do not extensively teach financial skills. Teenagers, highly susceptible to messages from the media, often do not have guidance from teachers, who are not trained to teach financial skills, or from parents, many of whom do not model healthy financial behavior. This series of articles at Consumerism Commentary serves to help inspire discussion about basic financial concepts. Please feel free to forward this article to someone who might benefit from a basic financial overview.
This article covers the staple financial resource for anyone seeking long-term financial stability, the savings account. This is the second article in the Money Basics series; this first article covers checking accounts.
What is a savings account?
Like a checking account, a savings account is a service offered by a bank or credit union for the purposes of keeping your money safe, secure, and accessible. While the purpose of a checking account is to allow frequent transactions, through checks, debit cards, or electronic transfers, the purpose of a savings account is long-term holding. If you have predictable income and predictable expenses, and you aim to spend less than you earn, you should be left with extra money at predictable intervals. This extra cash is the perfect candidate for deposit into a savings account.
One important aspect of savings accounts should be mentioned up front, and I emphasize this because it was never brought to my attention until I received a nasty letter of warning from a bank at which I broke this rule: you may only make up to six withdrawals per month (or statement cycle) from a savings account. If you choose to break this regulation or otherwise neglect to acknowledge it, your bank may penalize you by charging you a fee, disallowing the transaction, or even closing your account.
Savings accounts also earn interest. Every month, if you do not withdraw from your savings account, your money will grow. By giving your money to a banking institution in the form of a savings account, you are allowing that company to lend a portion your money to businesses and other individuals. Banks pay you for granting this privilege through interest payments to you.
Why do I need a savings account?
Any money that you do not need for immediate and expected expenses within one month, but that you might need in less than a year should be deposited in a savings account. This is the perfect place for a good portion of your emergency fund, money that you will use to pay your expenses if your income were to unexpectedly disappear or if an unpredictable expense were to arise.
For a suburban teenager in the United States, the first major expense might be a car. If you are like many, the first car will be purchased used (or “previously owned” as the salesmen like to euphemize). As you earn money from working during spring break or the summer, put as much from your paycheck into the savings account as possible. The more you keep in the bank, the more interest you will earn.
How do I manage my savings account?
My girlfriend has a passbook savings account. Every time she visits the bank to make a deposit, withdrawal, or transfer from or to her checking account, she hands the teller a booklet about the size of a passport. The teller uses a special printer to record the new transaction, any transactions that have not been recorded since the last printing like earned interest or ATM transactions, and the current account balance. While old-fashioned, this is a convenient way of managing a savings account. As more transactions are performed electronically or otherwise without the aid of a teller, the passbook is falling out of favor.
The popular alternative to the passbook is to receive a statement, mailed from the bank, each month. Like with the checking account, I recommend keeping your own record of every transaction that takes place within your savings account. Computer software like Quicken will allow you to do this, and in many cases, automatically compare what you have entered with the bank’s own records once they are available.
Almost all banks now offer online access, as well. If you ever want to check your bank balances, not trusting what you have entered in Quicken, your bank will allow you to visit a website where you may pass a security test and be granted access to view your account online.
How do I choose a savings account?
If you have previously opened a checking account, you may wish to open your first savings account at the same bank. This will allow you to perform immediate transfers from your checking account to your savings account. The benefit is your money will begin earning interest much faster than if you transferred money from one bank to another. The unfortunate down side is that most brick and mortar banks offer low rates of interest.
For this reason, I suggest opening a second savings account at a bank that offers high-yield online savings accounts. This option did not exist much more than ten years ago. A number of new online-only banks have been established since the dawn of the World Wide Web, offering great products and services with low overhead costs, creating an opportunity for them to offer better interest rates. Not to be outdone, old-fashioned brick and mortar banks are determined to compete in this new environment and have established online-only subsidiary companies or simply created savings accounts to compete with these higher interest rates.
When choosing a bank account, the interest rate offered should not be the only factor you consider, but it should be one of the most important. Look for a history of offering competitive rates as well as highly-rated customer service and an online interface with which you feel comfortable. I have reviewed the best online savings accounts, and my favorites include FNBO Direct for its consistently high interest rates and ING Direct for its above average rates and customer service record.
Once again, work to avoid fees. Some banks, particularly the antiquated branch-based banks, want you to maintain a minimum balance every month in order to avoid a monthly fee, while others don’t offer this avoidance option. These rules can get tricky. Some banks want you to have a combined balance between your checking account, savings account, and possibly even a line of credit for avoiding a fee.
Another popular fee is related to software. I mentioned Quicken above for keeping track of your savings account, but some banks will charge you a monthly fee if you connect to your bank’s electronic records directly from the program. In 2007, Wachovia charged me a surprise $5.95 for using Quicken, as I had been for several years. The bank changed their policy for some types of accounts, but the policy wasn’t intended to apply to the type of account I had. I was able to talk to a customer service representative to have the fee removed and a note placed on my account that would supposedly prevent that fee from ever being charged to me again. You might be able to talk your away out of these fees as well, but it’s better to avoid them in the first place.
When you compare interest rates between banks, you should look for the annual percentage yield (APY), not the annual percentage rate (APR) of interest. This allows a fair comparison between banks thanks to differences in compounding methods. This and more about interest will be explained in further detail later within the Money Basics series.
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Money Basics: Savings Accounts
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A quick roundup of current lending news.
In December 2008 we reported a prediction that credit card issuers would be reducing available credit by about 45%, and recently the company behind the FICO score released a report of credit lines being reduced from April to October 2008, right before that prediction was made.
From the study, we find that lenders reduced credit for 16% of consumers, and 31% of those affected had a late payment, collections account or public record (e.g. bankruptcy, foreclosure, garnishment or tax lien). Disturbingly, the median FICO score of those affected was 770, a very good score. So, while a smallish minority of Americans were affected, they were the best customers of the bunch: good scores with few red flags.
The better news is that the average credit line was reduced only 5%, so all other things being equal, the FICO score of someone in this group shouldn’t have been negatively affected. We’ll have to wait and see, of course, what happens to FICO scores after October 2008.
Deceptive Credit Card Practices Update
We haven’t written about this since inauguration day, but it looks like there may be movement again soon on a bill promoting the credit card holder’s bill of rights.
Lawrence Summers, a White House economic adviser said on “Meet the Press” this past weekend that the president will be “very focused in the very near term on a whole set of issues having to do with credit card abuses.”
It’s also possible that instead of passing a new law, credit card issuers may make a whole set of promises during a meeting with the president and his team on Thursday.
Then there’s the issue that banks aren’t lending what they are supposed to be. From Reuters:
Credit card issuers have received over $120 billion in taxpayer funds since October, money the government has asked them to use to expand lending.
But with U.S. credit card defaults at record highs, lenders are trying to protect themselves by tightening credit limits and closing accounts, actions that have infuriated lawmakers, consumers, and even triggered a New York state attorney general inquiry.
Bailouts Not Working?
Put too simply: taxpayers loaned billions and billions of dollars to banks who had stopped lending money to those same taxpayers, in order to get them lending again. Overall, this doesn’t seem to be working when we see headlines like “Bank Lending Keeps Dropping” and “U.S. Banks Line Up to Repay TARP Money“.
Commercial and industrial lending were down in February, but I was glad to see that Home Loan Refinancing was up 42% from January to February. Home equity lines of credit were also being processed at levels typical for the season.
Similarly, Americans feel like this is a good time to buy a house. In fact, 71% of people responded that way, the highest level in four years.
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The State of Credit, April 2009
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April is National Financial Literacy Month in the United States. In most cases, schools do not extensively teach financial skills. Teenagers, highly susceptible to messages from the media, often do not have guidance from teachers, who are not trained to teach financial skills, or from parents, many of whom do not model healthy financial behavior. This series of articles at Consumerism Commentary serves to help inspire discussion about basic financial concepts. Please feel free to forward this article to someone who might benefit from a basic financial overview.
This article covers the first type of bank account recommended for teenagers and others who are first becoming financially responsible. This is the first article in the Money Basics series.
What is a checking account?
A checking account is one of the most basic tools for establishing your financial identity. When I was a teenager, my parents took me to the bank to open my first checking account. I don’t remember the details, but I brought the money I had collected from my allowance and birthday gifts from relatives to the bank, and they gave me an account number and a book of checks. This checking account allowed me to keep my money safe as I saved money for large purchases. Every month, I received a statement describing all the money I brought to the bank, everything I took out of the account, and checks I wrote (if any). Banks won’t know about every check right away, so it’s important that you track this account yourself (see below).
The checks you write when you want to pay someone allow that person or business to take the money directly from your bank account. So if you want to use the allowance you have saved to buy a present for your brother, rather than going to the bank to take out the money you have deposited and carrying around bills and coins, you can write a check.
I mentioned the bank kept my money safe. Despite the popularity of bank robberies in the movies, it is unlikely for money to be stolen from a bank. It is more likely that cash left in my house would disappear, be misplaced, or be spent on things I didn’t need. The government helps out, too, by guaranteeing your checking account won’t lose your money.
What is a debit card?
Checking accounts have improved since I set up my first with my parents. Now, almost every bank will offer a debit card to go along with the checking account. This debit card lets you add cash to your bank account through an automated teller machine (ATM, or MAC machine). The card, which fits in your wallet and is usually made of plastic like a credit card, also allows you to withdraw cash from your account whenever you need cash. Some stores allow you to use your debit card to pay for the things you wish to buy instead of writing checks or exchanging cash.
Why do I need a checking account?
Any money you intend to spend soon should go into a checking account. When you open your first checking account, you may not have many bills to pay every month, like car insurance or rent. But you may want to buy birthday gifts for your friends and family, eat out with your friends, or in some cases, you may even need to help support your family. All of these will be easier with a checking account, checks, and a debit card.
If you have a job, find out about having your paycheck sent directly to your bank. This saves you the trip to the bank every week (or every other week) and allows you to receive the money in your bank account sooner. It also keeps your hands off the money so you don’t have the easier opportunity to get in your own way as you save.
How do I manage my checking account?
Banks will usually stop you from spending more money than you have in your bank account, but that is problematic when you write checks. If you write a check manually, your bank won’t know about it until the person or business who receives the check takes it to their own bank to deposit it or turn it into cash. So it’s very important to keep track of the checks you write so you always know how much money you have. If you mess up and try to spend money that you don’t have, your bank will charge you fees. These fees are completely unnecessary, so avoid them by keeping track of your money.
When you receive a check book, you usually receive a register — pages with grids. Within these grids, you should write down every transaction in your checking account. Each line includes a space for the date, a description of the transaction, and the amount. Your first line should be your opening deposit, the money you gave the bank to open your account. If you opened your account with $100 on April 19, 2009, your register would look like this:
| Date | Check Number | Description | Deposit | Withdrawal | Balance |
| 4/19/2009 | Opening deposit | $100.00 | $100.00 |
If you decide to write a check on April 20 to buy a gift for a friend at Best Buy, your register might look like this:
| Date | Check Number | Description | Deposit | Withdrawal | Balance |
| 4/19/2009 | Opening deposit | $100.00 | $100.00 | ||
| 4/20/2009 | 301 | Best Buy - gift for Dave | $40.00 | $60.00 |
As you can see, if you had $100 in your bank account at the end of April 19 and you wrote a check for $40 on April 20, your remaining balance is $60. Regardless of what your bank says, you only have $60 left to spend. At the end of the month, when you receive a statement from the bank, you can compare the bank’s records with your own, identifying which checks are still outstanding — not listed on the bank statement.
Keeping track of your checking account with this register was easy before debit cards and ATMs. But just as technology has made it easier to spend your money, technology has made it easier to track your money. I use Quicken on my computer because it works just like the register described above, but it automatically compares the bank’s records with mine.
How do I choose a checking account?
You should look for a checking account that does not charge you unnecessary fees. Most banks offer “student checking accounts” which have low minimum balances (if any) and no monthly fees. This is a good place to start. Student checking accounts are otherwise identical to regular checking accounts, and you can compare them by visiting a bank’s website or visiting a bank in person and asking questions. I suggest convenience, which can take several forms. You may want to choose the same bank that your parents use the most so you can combine trips to the bank when you have money to deposit. You could also choose a bank that has a branch location close to your house.
I suggest looking for an account that doesn’t allow you to “overdraw” your account. Overdrawing, which means taking more money from your account than you have available, can result in an overdraft fee. The bank will take your money from you as a penalty if you try to spend more than you have. Ask the bank about setting up your account to stop your debit card from working if you don’t have enough money. But the bank can’t do anything if you write a check and don’t have enough money in your account. If you write a check without enough to cover it, the check will bounce, and you will still be charged a fee.
Besides the regular or student checking account, you should know about two other types of checking account. Interest-bearing checking accounts allow you to increase your bank balance without doing anything. The bank pays you a small amount of interest every month in return for you giving them your cash. This sounds like a good deal, but it usually comes with certain restrictions. You may need to maintain a high balance in the account to earn this interest, the bank may charge you a fee, or a combination of the two. In most cases, savings accounts offer better deals than interest-bearing checking accounts.
The last type of checking account is gaining popularity. The paperless or electronic checking account, also called a bill payment account, eliminates the use of a checkbook. You will not write checks for these accounts, so you lose some flexibility to pay for a purchase if debit cards are not accepted. But you will be able to send checks to other people and businesses by visiting your bank’s website and entering the recipient’s appropriate information. The bank then sends a check electronically or through the mail and keeps a record of the payment online. I have an account like this at ING Direct.
This is the first article in the Money Basics series. Look for more from Consumerism Commentary about savings accounts, credit cards, debt, and interest.
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Money Basics: Checking Accounts
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Now that Tax Day has come and gone again, and anger is subsiding, let’s spend some time thinking about what a better system might look like.
Have you heard of the “Fair Tax” proposal? I may be late to the knowledge party (Flexo mentioned it briefly in December 2007 when comparing presiential candidates’ ideas), and it’s likely I had disregarded it because I was confusing it with various Flat Tax ideas, which failed miserably in the 1990s. But it’s different; here are the basics:
It’s a Tax on Spending and Nothing Else
Let’s start with the greatest part first: Federal income taxes get repealed. This includes personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes. That’s just about all the big boxes on your 1040. Instead, the Federal government collect revenue from sales of new goods and services (unlike Europe’s VAT idea, used goods are not taxed again).
According to the people who’ve calculated what would be a “fair” tax, a national sales tax of 23% would completely replace the need for all those kinds of income taxes. We’d be collecting the same amount of revenue. In short: because you take home your whole paycheck, the amount you spend or save is entirely up to you. Things in the store would appear to cost more than you’re currently used to, but a $77 item would still cost you $77 (read the complex bit contrasting tax-inclusive and tax-exclusive).
Wealth isn’t Penalized
Under our current progressive income tax system, you’re taxed more when you earn more. Subsequently, wealthy people (for whom I admit I do not yet feel sorry) are likely to complain that they are being “taxed to death”. The most common understandable complaint sounds like this: I don’t benefit x% more from common Government services more than anybody else, why should I pay x% more? And the unsatisfactory answer is always: because nobody else can afford it. (Then the argument goes off onto various tangents, some of which make sense.)
In the Fair Tax proposal, you choose how much you get taxed by choosing how much to spend. One of the assumptions behind the proposal is that if a) you already have plenty of extra money after your budgetary needs are met and b) you’re taking home your whole paycheck, that you’ll buy things that you want. I know I would, and I’m not exactly wealthy.
It’s Meant to be Revenue-Neutral
Replacing Federal income taxes with a 23% Fair Tax is supposed to mean that almost* all common services being paid for will continue as usual.
I ran our household finances through the Fair Tax Calculator and came up with these results:
- 2.40% more spendable income
- $1,984 more purchasing power
- $3,114 less federal taxes
These are fairly modest differences, which makes me feel better, and helps convince me that the idea really is “revenue neutral” and not a scheme to shut down Government services without considering the consequences.
* Taxes would be much, much simpler, and so the IRS would probably have to lay off some people. CPAs, likewise, would probably need to find other work.
Essential Goods and Services are Not Taxed
Well, sort of. Just like many groceries don’t have sales tax applied now, there are essential staples that none of us can live without that under the Fair Tax plan, you would get reimbursed for. The novel thing is that you’d get a “prebate”: a rebate before it happens. This is different depending on the size of your household, see the full table.
Conclusion
I’m not ready yet to conclude whether this is a better idea. It’s certainly simpler, and on its face it’s very tempting and does indeed seem more fair. I’m going to keep reading all the Pros and Cons I can find (from only reputable news sources, naturally). In the meantime, I’d love to get your opinion.
Start by comparing Fair Tax to Barack Obama’s tax plan and browse the FAQ, where proponents have answered nearly every question I had.
Finally, this isn’t just an idea floating around in the ether. There is a bill proposed in the U.S. House that is up for consideration. If you like the idea, I encourage you to call your congresspeople.
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This is a guest article by Ginger from Girls Just Wanna Have Funds. Ginger teaches women how to break financial ceilings one stiletto at a time! Join the social network, Girls Just Wanna Have Funds on Ning to connect with other financially savvy women.
This week I’ve been helping out my company’s HR department by reviewing resumes and conducting interviews. The experience levels range from those who are new graduates to people with years of experience. Sadly, I was disappointed with how many people didn’t have the basics down when it came to writing their cover letters and resumes.
Now isn’t the time to slack in this area if you’re looking for a job, you’re competing with literally hundreds to maybe thousands for one position. If you’re looking for work, take a second look at your resume and make sure your resume and cover letter at least falls within the following guidelines:
Do not:
… ask how much the position pays within the cover letter until you’re on the interview and/or sure that you will be offered the position. I personally don’t have a problem with someone asking but I think it rude to ask in an informally written cover letter without a resume, then telling me that you’ll send the resume after I tell you how much the job is paying. Seriously? HR managers and recruiters don’t have time for that, it’s rude and unprofessional. Needless to say I didn’t respond to said applicant.
… use an email user name that isn’t related to your government name. I can’t tell you how many times I saw email addresses like starzaligned@yourdomain.com, bustitbaby@yourdomain.com etc. I moved on to the next person because I’m a firm believer that if you don’t know these basic principles of resume writing then it will be questionable on whether or not you’ll conduct yourself professionally. Your email address should be some combination of your first and/or last name.
… use different fonts throughout your resume. Using different fonts makes your resume hard to read and it shows that you’re not as detail oriented as you need to be. Set the view on your resume to 70% and make sure everything is uniform and in line, especially bullets and indentation.
… extend your resume beyond one page. Unless you have 5-10+ years of relevant experience, you don’t need a 2-3-4-5 page resume, especially if some of your experience has nothing to do with the position. Try to keep the positions listed relevant to the job.
Do:
List your achievements throughout your resume. Time and time again applicants literally copy and paste their job description without any consideration to how their actual work contributed to the organization’s goals. You need to ask yourself: how does this description convey my worth to the organization? Does “putting files away at the end of the day” really convey my value? How about: “Systematically reorganized files to increase organizational productivity and efficiency.” Sounds highfalutin but it works!
Apply for jobs that are best suited for your skills and experience. Skip the long shot positions where your experience can’t possibly match with the requirements. Look at your resume and scan the job post, how can you honestly and ethically marry up what they are looking for and what you have to offer.
Maintain a consistent theme. If you’re a jack of all trades then it’s now time to settle down on one career area. Here’s a comment from a friend who works at Homeland Security: “When you have too many degrees and you’re not working in your field of study then most likely you are a risk to hire. Why? We are looking for people that are career driven and not job driven. Just some insight from looking over countless resumes.” How’s that for sage advice? Pick an area and stick with it or create different resumes for each area. Employers want to know that once hired, you’ll be committed to the job and organization, not planning for your the next jump 3 months in.
Have a friend, preferably someone in a managerial position, review your resume for errors. Sometimes having another set of eyes review your resume helps because they might see things you won’t after looking at it day in day out. Everything starts to look the same after a while.
Make your resume skimmable. Recruiters and HR Managers spend 3-5 seconds tops skimming resumes. If your resume is hard to read or the important information is lost in the layout then you put yourself at a disadvantage. Here’s an example of a resume makeover which resulted in the resume being easier to skim:
Take a second look at your resume and make a few edits if needed or revamp it for a bold and fresh look. Focus on your strengths and make them apparent throughout your resume. Recruiters are bogged down with countless resumes, make sure yours makes the first cut.
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Resume Dos and Don’ts (Plus Resume Makeovers)
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About the author: This is a guest article by The Weakonomist, an anonymous blogger responsible for everything at Weakonomics.com. As a banking insider he’s witnessed the economic implosion from inside the bubble. You can usually find him at the corner of Wall Street and Main Street throwing rocks at traffic.
My retirement accounts have dropped as hard as any index, I’ve watched friends and loved ones lose jobs (and fear for my own), you can’t go through 30 minutes of news without a sad story about someone losing their home. You can’t trust your government, you can’t trust Wall Street, some can’t even trust their own families with money anymore. We have no money, no way to make more money, and no end in sight to this vicious cycle. All of this is a result of the worst recession since the Great Depression, but none of the above is the worst thing we’ve lost.
As much as I pretend to be an amateur economist, I’m just as much an amateur psychologist. I’m a student of behavioral economics. And our economy has taken its worst blow in the form of self-esteem. More powerful than the loss of trillions in wealth and more devastating than losing your home is the long term effect these events have on your state of mind. It’s important not to get caught in this trap as it can hinder you from getting back on your feet. Let’s look at three examples of how you might get damaged:
The Terrified - Knowing the rules for retirement saving, our friend here diligently saved 15% of his income for retirement. After 10 years of saving he is basically no better off than before because the markets are so down. Distraught, he loses faith in the market’s ability to fund his retirement. He won’t put any more money into stocks and mutual funds because he’s afraid of losing it.
The Failure - This guy has worked hard his entire life. He never made a ton of money but was able to finally buy a house in 2004. He lost his job and then lost his house. Saddled with the guilt of letting his entire family down, he has lost the will to pursue the American Dream.
The Worthless - School never came easy to this guy, but he worked hard and got all the way through college. Having been told all his life that a college degree will help in his career, he graduated only to find there are no jobs to be had. He feels there is something wrong with him. Despite his desire to contribute positively to society, he instead sees a world that doesn’t want him.
These three guys have the same thing in common, they followed the rules, they played the game, and they lost. Due to factors they couldn’t control their self-esteem and faith in the system is tarnished. If you’ve seen the effects of depression first-hand you know exactly how bad this can be.
But all hope is not lost for these folks. They need to get back on their feet and find ways to get over this slump. It will do no good for them to try and convince themselves it’s not their fault and they couldn’t have stopped it, the human mind is too stubborn to accept that. Instead they must trick their own consciousness into feeling good again.
Our Terrified friend must forget about the past. Rule number one of the investment rules he learned was that past performance is no indicator of the future. That goes for the good years and the bad years. Don’t pull out of the market, because if the month of March has taught us anything it’s that the best returns come right after the worst ones.
The Failure has forgotten what the American Dream is all about. Half of the dream of success is failure. You can’t completely win at something until you’ve lost. It’s true some people hit a stroke of luck and it makes it look easier, but if you give up on a dream because of a setback then you aren’t working hard enough for it. The only way not to feel like a failure after a loss is to turn that loss into a lesson and then create success.
Finally, Worthless can look into new methods of adding value to this world. If you’re out of work or hate your job, volunteer. Making your resources available to a cause without an expectation of being compensated is perhaps the greatest value offered to the world. It fills whitespace on a resume, makes you a few friends, and most importantly makes you feel needed.
Just as a recession can be a vicious cycle of layoffs, deflation, and negative market returns, your mental health in this environment can be a downward spiral of pessimism, depression, and fear. However identifying these feelings is the first step towards recovery, just like an economist identifies the weakest points in the world of commerce. Be proactive; help yourself and help others stem these emotions and we’ll all work faster towards recovery.
If you enjoyed this article, please visit Weakonomics and subscribe to the blog’s RSS feed. We would appreciate your comments and reactions, so if you would like to contribute to the discussion, add your comment below.
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The Greatest Loss of This Recession
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About the author: Jeff Rose is a Certified Financial Planner™ and co-founder of Alliance Investment Planning Group. He is a veteran of Operation Iraqi Freedom, having served in the National Guard. His blog, Good Financial Cents, covers financial planning and investment related topics.
As a kid, there’s no greater comfort in having your parents there to pick you up when you fall. But what happens when the role reverses, and now you become the care taker of your elderly parents. Most parents will never admit to you that they need help keeping track of their finances. Admitting help is a sign of giving in and succumbing to their elder age and for many seniors is a hard pill to swallow. Down the road it may be a necessity to assist them in their finances, but it’s not too early to start the money discussions today.
Usually it will take some sort of medical emergency before both parent and child realize that they both need to be on the same page with the financial situation. I’ve seen client instances where suddenly deceased parents left their children to sort through the financial mess that’s left behind. It’s the equivalent of setting out on a long hiking trip without compass and map, having no clue where to begin or where you are going. If you think a parent is in need of help, start looking for signs. If they start complaining about misplaced bills, bouncing checks and unpaid electricity bills, it might just be time to step in.
Get the picture
You need to sit down with your parents to find out their whole situation. They should have in place several essential documents, including a will, living will and separate durable power of attorney for health care and financial decision making. If they have setup a trust, you should know where the trust documents are and who has been appointed trustee. If they have a safe or safety deposit box, you need to know where and what’s located in there. I’ve seen instances where clients parents had Cd’s and other investments spread over dozens of different banks and brokerage firms. Getting on the same page will save countless hours of frustration once your parents are gone.
Find out what the monthly income and expenditures are and make sure a usable budget is in place. By knowing what they spend their money on each month, you’ll be able to better assist them going forward.
Make things simple
If your parent has a plethora of plastic in their wallet, it’s time to start cutting the cards up and consolidating. Find the one with the lowest interest rate, and transfer all the cards to them. If they have department store cards, do your best to pay them off if the funds are available.
It might also be time to introduce some technology in their life with online banking. If you’re comfortable with this option, you’ll be able to streamline this so you can set up direct deposits, automatic bill pay and even have outside investment pay their dividends and interest into their checking/or savings accounts. I once had a elderly senior client who didn’t need his social security checks, so he just let them accumulate. Last time I checked he had almost 9 months of accumulated checks still not cashed. I could only imagine if something had happened to him and how hard it would be for his family to sort through his finances.
If your parents are computer savvy, develop a bill paying calendar and remind your parents to write checks. If it’s pass that point, you might have to write the checks yourself.
Find a money manager
Choosing the right person to manage the money might be tough. Handling your own finances is tough enough, by taking on somebody else’s can be overwhelming. Somebody that lives close might be the logical answer, but you also want to make sure that person has a handle on their own finances first. If you are the only child, it maybe your burden to bare, but don’t forget about close family friends or even a friendly close neighbor that might be there for support. There are even money management services that will take on the task of paying the bills on time. Before hiring one, be sure to thoroughly inspect the actually costs and fees of their program.
If a bill payer is required, check out the American Association of Daily Money Managers. Depending on your parents’ situation, you may also need to hire an elder care attorney to help with estate planning and to help assist them. The National Academy of Elder Law Attorneys can point you to qualified experts to help out. I’ve worked with elder care attorney that was able to greatly assist some clients whose father was in assisted living. When all else fails, there are even Certified Financial Planners that will assist in these sort of situations.
Have you had to help an elderly parent with their finances? If so, share your story on what you did to help out.
If you enjoyed this article, please visit Jeff Rose’s blog, Good Financial Cents. You can also subscribe to the blog’s RSS feed. We would appreciate your comments and reactions, so if you would like to contribute to the discussion, add your comment below.
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Helping Your Parents With Their Finances
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