Money WhizDom: Unraveling money matters with friends (CT Column 4)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, September 18th, 2007

Lisa owes me $14 for groceries. Pay electricity and rent by Oct. 5. Split the $24 pizza bill by three and collect money. Pay Shaun $45 for books.Is this how the back of your notebook looks? Or maybe your refrigerator has sticky yellow notes all over with these reminders. It is unavoidable that in a cohabitating situation you will have financial entanglements, but there is a much better way to manage finances between your friends and roommates.

One solution lies in a Web site, www.buxfer.com, developed by two graduate students in California. Short for "Bucks Transfer," this Web site was developed specifically to alleviate the confusions faced by students in sorting out money issues amongst friends and roommates. This online resource essentially helps you track where you spent your money, who owes you money, how you should split bills, when you should pay your bills and many more things. It also analyzes all these aspects and has incredible pictorial and graphical representations of the same.

Besides being tremendously user-friendly, the Web site is simple and straightforward to use." We have tried to keep the site very simple and devoid of any financial jargon," said Ashwin Bharambe, one of the Web site's co-founders. Created by students for the students, you can navigate the Web site effortlessly, and understanding the workings of the Web site is extremely easy.

The application's versatility can be felt from the beginning. You don't even need to create an account and can log in with your Google, Yahoo!, Facebook or AIM accounts to use Buxfer. The straightforward interface immediately allows you to add a new transaction for both individual and shared accounts.

There are also features allowing users to invite friends and colleagues to share an expense, remind them of a payment, etc., and also keep track of all your transactions. Buxfer's direct link to Amazon payments makes it easier to settle debts between friends.

The Web site even has excellent mobile support. You can interact with Buxfer using SMS text messages, twitter or the mobile optimized http://m.buxfer.com/. This keeps you informed of your on-the-go cash expenses, which are very easy to miss out on.

Another great feature Buxfer boasts is the real-time budget alert system to help you be more prudent.Using this you can set up budgets in order to control your expenses, helping you make an informed decision when you are out in an electronics store trying to quench your compulsive shopping desire.

It's important to learn the significance of budgets, and budgeting early on in life. Using tools like these, you can devise lenient spending plans and prevent yourself from getting shocked when you see the bank statement at the month's end. People may think they're being confined by using budgets, but spending money prudently is vital to being financially successful. Remember, wealth is accumulated; it's not produced overnight.

Like most personal finance management (PFMs) applications, you can also import bank and credit card statements to your Buxfer account. This could make Buxfer a one-stop-shop to manage all your money matters, be it saving, expenditure or budgeting.

To top it all off, Buxfer has an application on Facebook itself. By adding this widget on to your Facebook homepage, inviting friends to share expenses and making timely payments becomes even easier. The founders stressed the importance of this essential appeal to a younger audience they would attract by having a Facebook application.

"One of the important benefits of Buxfer is that it removes the guilt out of friendly borrowing. It also makes finances transparent and as a result, removes money as a source of arguments between friends," Bharambe said. As students, this is a great tool to use to simplify our financial worries and better manage our money. Spending a few minutes analyzing and planning our expenses could help in the long run.

Next week, read about critical issues currently facing the U.S. economy and how they affect our lives here in Blacksburg.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/18/money_whizdom__unraveling_money_matters_with_friends

Money WhizDom: Is your bank bullet-proof? (CT Column 3)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, September 12th, 2007.

College teaches you many things, but one thing it does not teach you is how to make your money work for you. Financially successful individuals actually derive most of their wealth from their money's hard work and not the salaries they earn.

Most of us have our pocket money for the semester parked in a bank to which we pay absolutely no attention. Choosing the right bank for your savings and checking accounts is important, and recognizing this early in life will greatly help in shaping your financial future. Here are some things to watch out for.

Verify that any account you open with any bank is Federal Deposit Insurance Corporation insured. An FDIC-insured stamp essentially means that the federal government guarantees in any emergency (if the bank goes bankrupt, if the economy goes into a tailspin, if your money just disappears, etc.) to reimburse up to $100,000 of your money per account.

Think of this as free insurance for your bank account by the federal government. This practice was established in the early 1930s when the the Great Depression wiped out the savings of millions of Americans. Fortunately for us, most of the banks and credit unions in Blacksburg are FDIC insured. An online bank is where your vigilance is needed.

The next thing to observe is the interest your bank is paying you for your savings account (also called the savings rate). A savings rate is how much the bank pays you as an incentive to save. Most local banks (like Wachovia, SunTrust, Freedom First Credit Union, etc.) pay one to two percent in the best-case scenarios. This is abysmal, as other banks offer higher savings rates. Although our pocket money for the semester is generally not more than a few thousand dollars, learning to save in banks with a high savings rate is a good practice. One online bank that I found reliable, safe and easy to use with a high savings rate is ING Direct. Here, you get a competitive 4.5 percent savings rate with no minimum balance requirements or fees of any kind.

Therefore you can have your money earn five percent interest online and occasionally transfer money to a local checking account for your expenditures. Another good online bank with a 5.05 percent savings rate is Emigrant Direct. None of the local banks offers such a competitive rate.

Another great way to park unused or "dead" money and also earn a tidy return for risk free is via Certificate of Deposits. You can purchase CDs from banks from $500 to $100,000 for time periods ranging from three months to 20 years at competitive interest rates. When you purchase a CD for a specific amount and time period, you are promising the bank that you will leave that money untouched for the promised time period, for which the bank will reward you with some money.

For example, if you buy a $1,000 CD for six months with a 5.25 percent rate, at the end of the six month period the bank is obligated to return your $1,000 and reward you with an additional $26.25 for lending them the money for six months. Although this is not a stellar return on your $1,000 investment, it's better than nothing and most importantly it prevents you from spending that $1,000 on frivolous things you otherwise might have purchased. Think of investing in CDs as another form of saving but with a higher return.

Of course, you should purchase a CD only if you are certain that you won't need the money in the near future. An early withdrawal of funds will prompt the bank to charge you a fine. Again, local banks do offer CDs but their rates are not as competitive as some online banks. ING direct, E-loan and IndymacBank offer amazing rates for your CDs. For example, a $1,000 CD for a five-month period will earn you a handsome 5.45 percent on your investment if purchased from IndymacBank.

A good source for the prevailing rates for savings accounts, checking accounts, CDs, etc., is www.banx.com and www.bankrate.com. You can also check how much your local bank is offering and compare to see if there are other banks in your locality that can serve you better.
Next week: See how you can simplify managing money amongst friends, roommates and family using a versatile online resource.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/12/money_whizdom__is_your_bank_bullet-proof_

Money WhizDom: Learning the wise use of credit cards (CT Column 2)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Tuesday, September 4th, 2007.

America is a credit economy. We have mastered the art of borrowing money and then spending more than we borrowed.This is true with the government (we're running record trade and fiscal deficits right now) and also tends to be true with people who don't manage their money well.

Our weapons of mass destruction are called credit cards.Credit cards entice us into spending beyond our means. Having no credit card is a bad solution because this will stifle us from building a good credit history. Everyone knows that a good credit history is vital; it establishes the interest rate we pay on our loan when we buy that first car or home.Also, owning a credit card seems inevitable in this increasingly cashless economy.

Before divulging on good and bad uses of credit cards and the details of credit scores and credit history, understanding the concept of debt is important.When you borrow money, you are the borrower, and your credit card company is the lender. You pay back the money you borrowed with an interest, the fee you are obligated to pay for the money you borrowed, which you otherwise wouldn't have.Clearly, when you use a credit card you take on debt. In a broad sense there are primarily two forms of debt: good debt and bad debt.

In both cases you borrow money, but in the first case it's used to add value to you (debt to buy a home, to invest or to attend college) and in the second case (debt used to make frivolous purchases that lose value over time), it has detrimental effects.We as college students need to worry more about the second form of debt. We frequently use credit cards to make everyday purchases and don't really worry about buying a new home or car. Let's see how this problem can be tackled.The solution is pretty simple and straightforward.

You can apply for and own just one credit card with the minimum credit limit (your credit limit or line of credit is the maximum you can borrow/spend when you use your credit card). This way, you have the luxury of using it when you need to and you also build your credit history.

You don't need a credit card with a $5,000 line of credit and $150 minimum payments every month to build a good credit history. All you need is one credit card with a $500 line of credit and about $30 to $40 minimum payments. This option is easier; it builds your credit history and simultaneously prevents you from overspending.

When you pay your monthly bills, it is best to pay the full amount due and not rack up any debt. By paying your full dues you are virtually gaining access to free money, but if you extend paying the full amount and only pay the minimum amount required, you will be charged interest on the amount you owe.Credit card companies also charge interest on interest (compound interest), which is again dangerous if you don't pay your full amount every month.

Building your credit history as mentioned above is essential. Your credit score is derived from your credit history, in simple terms, your credit score is a report card of how you have handled debt historically.What are the main components of your credit score? Maximum weightage is given to the promptness of your payments, so making timely payments is essential.

The second most important aspect is something called the "current debt to limit ratio."Say your credit limit is $500 and your balance (the money you've borrowed) is $350, your ratio is 70 percent. It's ideal to keep this ratio at or below 50 percent. These two yardsticks (timely payments and debt-to-limit ratio) influence your credit score almost 65 percent.

It's a bad idea to apply for a new credit card if you don't need one. Doing this will reduce the average age of your account and will have harmful effects on your credit score.Also, one of the worst habits is to apply for those Gap, Circuit City or American Eagle in-store cards.

You may think you're being smart by getting a 10 percent discount, but owning these cards have damaging effects on your credit score.By doing this you are technically increasing the amount of credit you can get (more cards, so more debt) resulting in a lower credit score. The other factors just discussed contribute to the remaining 35 percent of your credit score.

There is no ideal credit card that one can own, but there are always good deals up for grabs. Two great places to explore this are www.cardweb.com and www.creditcardsearchengine.com. The second website also has a dedicated section for student credit cards.

Next week, I'll discuss things you should watch out for when you open a bank account, and how you can smartly invest unused money lying in the bank to earn a tidy and risk-free income.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/04/money_whizdom__learning_the_wise_use_of_credit_cards

Money WhizDom: Learning stock market basics. (CT Column 1)

by Adhvith Dhuddu, Collegiate Times Regular Columnist 
Wednesday, August 29th, 2007

There is no better way to understand how the markets work than to open a trading account and dabble around with a few hundred dollars (not play money). The knowledge that one can gain by doing this is immense and will compound going forward. But to the novice, stocks, futures, options and commodity markets appear complicated and out of reach. Understanding basic aspects of how they function will greatly help in making a decision to start investing early. Starting early tremendously helps improve ones general knowledge about the economic and financial health of a country (or company) and also gives an exposure to how corporate America functions.

When a company wants to raise money there are three primary ways of doing it: borrow money from the bank, issue bonds in the bond market, or issue stock in the stock market. The company decides to issue stock and then approaches, say, Merill Lynch, and asks to help them out. Merill Lynch agrees and they are called the underwriters for the stock. Merill Lynch provides this company the $10 million they need (in exchange they get proportional control) and turns around, slices them up into two million shares of five dollars each and sells them to brokers, investors and other banks (the public). The stock of this company is officially in the public, has been listed as a public company in a stock exchange, and can be traded. This whole process is called the initial public offering or IPO.

As most people are aware, the main stock exchanges in America are the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ) and the American Stock Exchange (AMEX). Note that the Dow Jones is not a stock exchange, it's only an index. These are the exchanges where you can buy and sell your stocks through your broker (there are mainly two types of brokers the discount brokers and fully functional brokers). The reason you buy and sell through your broker is because he or she is a member of the exchange and you are not. To become a direct member of the exchange you should be willing to shell out a few million dollars.

Think of the stock market (or the futures, options and commodity markets) as an automobile. Your car has different parts (engine, tires, etc.) and runs on a fuel. Similarly, these markets have different parts (the exchanges, the companies listed, the brokers, the Securities and Exchange Commission, etc.) and run on a fuel called money. If the day money dries up on this planet, these markets will cease to exist.

But why and how does the stock price go up or down? In the business world, a year is referred to as a "financial year," and the financial year varies for different companies. For example, GAP's financial year starts May 1 and ends April 30 and ExxonMobil has its financial year lasting from Nov. 15 to Nov. 14 of the following year. Each financial year is divided into four quarters of three months each. Publicly listed companies release their earnings report for each quarter on a pre-specified date. Stocks experience extremely significant movements the day the earnings report is released. This is one event that moves the stock price considerably depending on the earnings report and the company's outlook in the coming quarters and financial years. Also, extremely heavy buying and selling of a particular stock by a mutual fund, pension fund (your 401(k) and IRA money) or a hedge fund can significantly impact the price of the stock.

One must understand that the primary driver in the movement of the stock price is the supply and demand relationship. If the stock has increased demand and less/constant supply (i.e. more people willing to buy a stock and lesser number of people willing to sell the stock) the price of the stock moves up. On the contrary, if there is less demand for the stock (i.e. less people want to buy the stock) and more/constant supply (i.e. more people willing to sell the stock), the price tends to go down. Therefore, when the above mentioned funds buy and sell stocks, a significant imbalance in the equilibrium of supply and demand is created (because these funds buy and sell in hundreds of millions of dollars) driving the stock price up or down.

You can sit in a class and learn about swimming all day, but when you dive into the water you pretty much forget everything you learned and start again. Similarly with the stock markets, taking the initial plunge is important and learning about investing/trading will follow. You drive your car and follow certain rules (stop on red, go on green, etc.), likewise, following rules while trading and investing will put you on track for financial success. Once you've understood basic concepts, opening an account is hassle-free. Online brokers like Scottrade, ShareBuiler and Zecco are extremely customer friendly and will help you along the way.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/08/29/column__learning_stock_market_whizdom