The Amateur Financier

Welcome to the final lesson this week, this time concerning the always important topic of entrepreneurship.  I doubt something like entrepreneurship could really be properly taught in a classroom; the essence of being an entrepreneur is having the drive and willingness to go out, experiment, possibly fail, and if so, getting right back up with a new idea and trying again.  I doubt such a spirit can be taught in school (although, if there are any colleges that offer remedial courses in it to twenty-somethings, I’d love to hear about it).  With that in mind, onward to a lesson that hopefully instructs on some of the methods, if not the motivations, to becoming an entrepreneur.

The Lesson

There is a charge you’ll hear every so often from the financial media about the educational system, claiming that it is designed for twentieth century lifestyles, to slowly mold young people like yourselves into cogs in the industrial machine.  For my part, I don’t believe this is so; we as educators try to expand and improve the minds of our young charges, yourselves included, to the best of our abilities.

But still, there is a grain of truth to this criticism.  We have a tendency to push you towards the waiting doors of a university, there after to find yourselves encouraged to seek a job that, in days gone by, would last the rest of life.  For better or worse, the world where you could be a company man (or less commonly at the time, a company woman) for forty years and retire with a gold watch, a pension, and a condo in Florida has all but disappeared.  Now, even if you go the traditional route of working for someone else, you can expect to change your job at least three times during your lifetime.

In the right hands, a computer is the entrepreneur's best friend

In such an environment, I’d be remiss in my duties as an educator if I didn’t at least mention an alternative: striking out on your own, as an entrepreneur.  There’s no better time in history for you to attempt to make a little bit of money when you get off of school, without having to take a part time job at a fast food restaurant.  The abundance of personal computers, the rise of the internet, and the ever increasing ways that entrepreneurial youngsters like yourself can use them to generate a profit is something that continues to amaze me.  Furthermore, you are at the perfect age in which to put your talents to use; you still have your parents to rely on in case your attempts fail, you are young enough that a temporary set back will not ruin your future, and you likely have a better understanding of current technology than any of your teachers, including me.

You might be wondering how you can put your skills to use and maybe earn some money along the way.  What follows are a few suggestions I can give you about ways to set your entrepreneurial spirit free.  It’s by no means a complete list, but will hopefully spark a few ideas and perhaps inspire you to come up with some thoughts of your own:

1) Create a Blog – Yes, it is a very common idea, and yes, you will face quite a lot of competition, particularly if you attempt to blog about a very popular topic, such as personal finance, technology, or toughest of all, blogging itself.  Still, if you are able to create interesting and unique writing on a regular basis and do not get too frustrated by the time it takes to get yourself established, blogging and be an interesting way to share your thoughts and possibly make some money.

2) Post Some Videos – If you’re a class clown, or simply believe what you say and do is of interest to the rest of the world (I’m looking at you hiding in the back there, Evan), by all means, make a video or two and put it up on YouTube.  Besides the opportunity to share yourself, you can also now profit from your popularity by becoming a YouTube partner and sharing in the revenue you generate.  Hey, it’s one way to make a living.

3) Sell Crafts - You might not have much to write or to say, but if you are the crafty sort (as in, you like to make crafts), you could find a niche selling your works.  Site like Etsy and Ebay make it easy to sell just about anything you could imagine, profiting from your creativity without ever leaving your home.

4) Offline Entrepreneurship – Lest this list convince you that you need to be online constantly in order to become an entrepreneur, here’s a handy reminder that there are still money making opportunities in the real world.  Consider the humble lemonade stand: not the most high-tech of possible money making opportunities, certainly, but one example of how to make money in the ‘meat-verse’ without having to rely on bosses or paychecks.

Hopefully, this list helps you to think about possible ways you can stretch your inner entrepreneur.  For homework, just try to come up with a few ideas for how you personally could make some extra money.  Class dismissed!

• Ten Commandments of Credit Cards
• Leverage Basics
• Thoughtful Thursday: Tax Time

• Teaching Your Children About Money Lesson #3: The Meaning of Sacrifice
• How to Find Financial Stability in Unstable Markets
• The things people say

The fourth in the series of things you did NOT learn in school about managing your money, but really need to know for life.  This time around, we’re looking at investing.  Of course, because a major portion of The Amateur Financial’s coverage has always been about investing, this time, we’re going to look specifically at some of the advice you should heed if you are young and have time on your side.

The Lesson

Alright students, settle down.  Today, we’re going to be talking about investing.  There are probably as many books out there on investing as there are on all the other topics we’ve covered in this course, and there are nearly as many different investments as there are books.  Trying to cover even a small fraction of the stocks, bonds, mutual funds, and real estate investments in the world would easily take up all the time we have for this class as well as all the time you’re going to spend in this high school altogether.  That’s why, rather than trying to turn this course into Investing 101, we’re instead going to cover a few general principles of investing.

The first thing to remember about investing is to start early.  You might be tempted to think that just because you’re still in high school, you’re too young to worry about investing.  The longer you stay invested, the more time your money will have to compound, meaning more money for you when you retire.  Compound interest is your best friend when you have decades before you will need the money.

You also want to be sure not to take too little risk, especially when you’re young.  It’s tempting to put your money into savings accounts or low yielding money market funds, especially at times like we are currently experiencing, filled with fear and doubt about the future.  It certainly feels safer to have your money somewhere it will not lose value; but inflation will slowly eat away at the real value of your money.  You’ll also miss out on the growth potential offered by ‘riskier’ investments that offer greater returns, like stocks.

Let’s put this into more concrete terms, so you can see how time and risk (as measured by potential returns) can benefit you. Take a look at this chart:

The growth of $1 over time

This table shows the growth of one dollar from the listed ages until you reach 65, the standard retirement age.  It also shows how the returns on your investments effect the final total.  A six percent return is fairly conservative, and is achievable with a primarily bond portfolio, while a ten percent return reflects a portfolio of all stocks.  Eight percent is a reasonable return for a balanced fund, or a mix of stocks and bonds.  If you want to figure out how much an investment of more than one dollar will be worth, simply decide how much you want to invest, and multiply that dollar amount by the appropriate figure in the table to determine how much your investment will be worth.

Two things I want you to notice about this table.  First, the younger you are when you start investing, the greater the time your investments will be able to grow and the more money you will have when it’s time to retire.  Begin investing at eighteen, and you’ll have more than ten times as much money as you would if you started investing at sixty.  Second, the younger you are when you start investing, the more time your money will compound, and the greater a difference the return you get on your money will make.  If you start investing at fifty, a ten percent return leaves you with less than twice the amount of money of a six percent return.  However, start investing at the tender age of eighteen, and taking a bit more risk to achieve a ten percent return gives you nearly six times as much money as you would get with a six percent return over the decades.  Taking on some extra risk is a winning gamble, especially when you are young.

A third tip: when investing, follow the advice of Jim Cramer (for this particular piece of advice and few others) and think about your investment money in two different piles, the retirement pile and the discretionary pile.  The retirement pile should be invested with an eye on preserving it for the future; while you can (and should) attempt to maximize its growth while you are young, by investing in growth vehicles like stocks, you shouldn’t try to shoot the moon with your retirement fund.  Instead, invest in nice, steady mutual funds, which are unlikely to go bankrupt or otherwise destroy your retirement fund.  For the discretionary pile, you can take more risk; as long as you are using money you don’t need for another purpose, such as retirement savings or living expenses, you can speculate with your discretionary money without adversely affecting your life, and maybe, just maybe, succeed with making money fast(er than other people).

Finally, be careful who you turn to for money advice.  There are many good sources of advice out there, from books and magazines to financial advisers and even some well-written, highly impressive blogs. But there are also many sources of financial information that are incorrect at best, and downright dishonest at worst.  Watch out for false information of all types, as you are the person who will care the most about your finances.  If something sounds too good to be true, like a promise of returns on investment far in excess of the typical returns for that asset class, it probably isn’t a real opportunity.  If you take nothing else from this class, be vigilant and skeptical in your investing life.

*Bell Rings*  That’s it for now, students; enjoy the rest of your classes, and be sure to make good financial decisions in life!

• Book Review: Yes, You Can Still Retire Comfortably!
• Scams, Schemes, and Scum: Ponzi Schemes
• Investing 101: ETFs

• A Blogshow of Financial Resolutions
• 10 tips for talking to teenagers about investing
• Lessons in Personal Finance

Welcome to another edition of Financial Lessons, the week long series where we cover some of the lessons you SHOULD have learned before graduating high school, but didn’t.  So we go on boldly, covering yet another aspect of personal finance that is quite simple, yet usually ignored: making a budget.  Sit down, put your books away, and get ready for more learning!

The Lesson

Settle down, settle down, we need to get started.  Today, we’re going to talk about making a budget.  Don’t worry, it’s not as tough as it sounds, and hopefully, it doesn’t sound all that tough.  First thing I want you to do is to take out a piece of paper and turn it on its side.  Draw a line dividing it in half, and label the left side ‘Income’ and the right side ‘Expenses’.  You should have something that looks like this:

Not too hard yet, right?  Alright, now you need to list your sources of income on the left.  For you as high schoolers, it’s probably pretty easy: just a part time job, perhaps an allowance.  As you get older, your income will become more diverse, and you’ll have to consider investment income, rental property income, and possibly income from a business, as well as income from a salaried position.  You can do the same thing on the right, listing any expenses you have, from the gas you put into your car to the amount you spend going out on dates.  Again, with age will come complexity, and your expenses will increase over time to cover things like insurance, mortgages, and household expenses on top of your current spending.  You should also budget in some amount for saving and investing each month; if you tell yourself that you’ll ‘invest what’s left’, you’ll almost never find yourself with anything left.

I see some of you are already concerned about how to cover non-monthly expenses and income, like Christmas gifts and automobile inspections.  There’s two ways to handle it.  You can include them only for the months where you have them, although this will make your budgets vary from month to month.  Another method, one that strikes me as superior, is to break your large, non-monthly expenses down into smaller, monthly sums.  If you spend $300 on auto insurance once a year, for example, you can budget $25 for it each month.  Put that money into a designated account or otherwise keep it separate from your regular spending money, and you’ll be sure to have enough when those once in a while bills roll around.  (For the unexpected additions to your budget, like bonuses at work or gifts from your family, you can probably avoid including them; they’re unpredictable, and will only skew your budget to make it look like you have more money available than you really do).

Sum up both sides of your budget, and you should have something that looks a bit like this:

Now that you’ve summed both your income and your expenses, it’s time to subtract your expenses from your income.  Take the total on the left, subtract the total on the right, and you’ll see whether your budget is balanced or not.  If you have a positive number, congratulations!  You’re spending less than you earn, and you have some extra you can save, invest, or possibly just spend.  If you came up with a total of zero, less congratulations are in order; you’re riding on the border of going into debt, and one month with greater expenses than you planned could be disastrous.  Let’s just see what sort of number I have…

Uh oh, I’ve got a negative number; I’m spending more each more than I’m earning.  There’s no way I can keep up this pace without going into debt; clearly, I need to make some budget cuts.  If you can’t bring in more income each month (and there’s usually no way to do that, short of working a lot more overtime), you’ll have to find some fat to trim from your spending.

I suggest numbering all your spending based on the priority it has in your life; you can either start with the highest priority as number one and go down from there, or grade everything like we do here at school.  In that case, a four would be anything you absolutely have to have, like food, running water, and medicine,  a three would be something you’re really reluctant to lose, but could give up to keep the fours, a two would be something you want but don’t need, and a one would be something you can happily lose in order to keep your finances sound.  (A zero would be something you wouldn’t even miss, and are surprised you were even bothering to keep paying for it.)  My priorities would look like this:

As you can see, keeping a roof over my head and the power and water flowing range the highest with me.  My car is next on the list, as I need to be able to go to work and get home again, and I also put food as a three.  Not that I can go without eating more than I can without a house, mind you; instead, this shows that I spend a portion of my food budget on restaurants and other expenses I can cut, while still eating regularly.  My rental property and investments come after that; while I want to keep investing, if push comes to shove, I can cut or even eliminate the amount I spend on this expense.  Last on the list is entertainment; while I don’t want to live the life of a miser and have no fun at all, I can cut back on my movie viewing or pay television without seriously hurting my future or my quality of life.  At this point, you should probably try to break down your expenses in more detail to determine how you would rank the different sub expenses in each category, so you can see how much of your food expenses go into eating out, for example.  But that would give us some rather cluttered graphs on the board, so let’s stick with this.

Now comes the tough part: if you are spending more than you earn, or even if you are spending most of what you earn, you need to cut back.  Depending on how much you need to cut, this can either be fairly easily, or diabolically difficult.  If you only need to cut a small portion of your expenses, it can be possible to get your budget back in balance by trimming off some of the things you don’t really need and cutting back on the expense of things you do need.  In the example I created, we could cut the entertainment budget in half, trim about one hundred dollars from the food budget, and possibly decrease the utility charge by cutting back on water and electric usage.  All of these are fairly painless, and give us a budget that looks like this:

You see, it’s not too hard to get into the black.  The problems start to arise if you need to cut down even more; soon you find that you may run out of ones and twos to cut from your budget, and have to seriously consider how whether you can cut down or even eliminate some of the three and four ranked items on your list.  Still, if you value a balanced budget (and you should, if you don’t want to build up debt) you’ll have to be willing to sit down and seriously consider the priorities you have for your money.

Hopefully, this lesson will help you in making up your own budgets.  For homework, work with your parents to make up a budget for your family, and be sure that it balances out.  *The bell rings.*  Have a great day, students!

• If I Was In Charge: Government Budgets
• Net Worth Update: Unemployment Trouble
• Ten Commandments of Credit Cards

• Track Your Money with Excel
• Sunday Money Madness: Bootacular Edition
• Breaking Down Budgeting

Welcome back for the second edition of Financial Lessons, where you learn everything that should have been taught to you in high school (but probably wasn’t).  Today, our lesson plan includes some of the basics of house buying, a particularly good topic which should have been studied more closely in recent years.  What information about purchasing a home should be shared with people who probably don’t even pay rent yet?  Let’s head back to class (and I promise it’ll be more helpful than dissecting frogs).

The Lesson

Welcome to a particularly pertinent lesson, at least for any of you who hope to own a house one day.  There are numerous advantages to owning your own house, from the financial benefits to the psychological boost of having a place that is all your own.  If you do it right, owning a home can be a solid foundation on which to build your financial future.  This lesson is devoted to helping you do it right.

Home Sweet Home (Ownership)

The first step towards buying a home should be to save up for a down payment.  The days when you could get a good home in a great neighborhood with nothing down are gone.  If you can’t find enough money to save up a substantial down payment while still investing for retirement, building up an emergency fund, and paying for your regular living expenses (including your rent), there’s a good chance you don’t have the discipline to own your own home, with all the maintenance and regular expenses that home ownership entails.  Work to cut down on your monthly spending and start to put money away into a dedicated, non-emergency fund to save for your down payment. (Remember, class: you should always have three to six months worth of expenses set aside to cover emergencies, whether a loss of income or a sudden, larger than expected expense; this money is NOT to be used for your down payment.)  Your goal should be an amount equal to twenty percent of the house prices in your area, but you can get away with having ten percent, or even five percent, provided you can afford some added payments each month.

Speaking of which, while you are saving your down payment, you should try to figure out how much you will be spending each month on your new home.  Mortgage calculators, like this one from Bankrate.com, can give you an idea of what you’ll need to pay each month to cover your mortgage expense.  But don’t think that your mortgage is your only expense as a homeowner; you will have utilities, homeowner’s insurance, and repair costs  added to yur bill, most which would be included in your rental costs.  (In addition, you will also have private mortgage insurance (PMI) or a second mortgage if you put less than twenty percent down.)  Factor them in by learning what the expenses are for your would-be neighbors, or take a conservative guess at your total monthly costs by adding on fifty percent to the cost of your mortgage.  If you can’t afford that amount, you’ll have to work to increase your monthly earnings, decrease your (non-housing) expenses, save up a larger down payment to lower the costs of home ownership, or look at less expensive homes.  A combination of these four methods should enable you to get to the point where you are ready to purchase a home.

Once you have your down payment saved and know how much home you can afford, it’s time to go mortgage shopping.  Unless you are independently wealthy or have very rich, very generous parents, chances are that you won’t be able to afford the cost of even a little starter home at first.  Instead, you will need to go to your bank, credit union, or mortgage broker and borrow money in order to purchase your home.  Your goal is to become pre-approved for your mortgage; your lender will do a thorough check of your finances, to ensure that you can afford the mortgage, and when you pass all the checks they will do, as I’m sure all of my students will be able to do, you’ll have the promise of a loan from the bank to cover the expense of purchasing your house.

There are several types of mortgages, some of which have gotten quite exotic, but the two most basic types are fixed-rate mortgages and adjustable-rate mortgages (or ARMs).  A fixed-rate mortgage is exactly what it sounds like: the interest rate charged on your mortgage is fixed for the life of the mortgage, typically fifteen or thirty years, and won’t be changed at all while you have the mortgage.  This definitely makes planning for future expenses easier; you’ll have the same mortgage charge ten years from now as you have during your first year.  However, the initial costs for this type of mortgage tend to be a bit higher than ARMs.  With an ARM, your rate will start lower than a fixed rate mortgage of equivalent length; however, the rate could change (or adjust) to be higher in the future, after the initial, fixed rate period of the ARM is over (assuming your ARM has an initial fixed rate period; some ARMs do not).  ARMs can save you money initially (and possibly later, if they adjust downward), but are more risky than fixed-rate mortgages, and require more research and consideration to ensure you don’t end up on the wrong end of an adjusting rate.  There are also other types of mortgages, such as interest-only and option mortgages, but they can get rather complicated, and I think you should probably avoid them.  (If your lender hasn’t been scared off of offering them by recent events, anyway.)

Once you have a mortgage pre-approved and plenty of money for a down payment (as well as closing costs, inspection costs, and any number of legal and other fees; buying a house can get rather expensive), you’re finally ready to look for a house.  If you aren’t a seasoned pro at house hunting, you will probably want to hire the services of a Realtor; in exchange for a portion of the final selling price, you will get someone who will help guide you through all the inner workings of buying a house.  You’ll also want to have a home inspector working with you, to ensure that the home you buy meets structural standards.  Finally, you’ll need to make sure you have home owner’s insurance to cover your house before you finally close on the deal.  We’ll discuss all of these issues further in future, as I’m sure you’re already wondering just how long this class period is going to last.  Just remember, even after you have the money side of home buying in the bag, there’s still the actual house that you need to consider.

At this point, you might be wondering just why you should even buy a house.  There are several advantages to home ownership, many of which derive from preferential government treatment of housing-related expenses and profits.  The interest you pay on your mortgage (and in the first few years, most of the cost will be interest) is tax deductible, meaning that you will have a nice write-off on your taxes if you itemize your deductions.  Also, you can currently sell your primary residence and keep $250,000 of the profits without having to pay any tax if you’re single, $500,000 if you are married, provided you lived in the house for at least two of the past five years.

Of course, these benefits are based on current tax laws, and could change (for better or for worse) by the time you are ready to purchase a house.  One thing that won’t change is that over the long term, buying a house is cheaper than renting.  Because most of your home ownership expense is your mortgage, a cost that is either fixed or capped (with ARMs), your monthly expenses will grow at a lower rate than the rental costs for a similar place.  Furthermore, when you pay off your mortgage in fifteen or thirty years (which sounds like a lifetime to you youngsters, I know, but will pass faster than you think), the biggest housing expense you will have disappears, and you are suddenly living for much less than someone who rented for that period of time.  Of course, buying a home means you will also own the home; if and when you sell (or your children sell, if you pass it on to them), you will be able to profit from the sale, while you can’t profit from the rising price of a house you are renting.

All of that said, however, before going through this whole process of buying a home, you have to decide whether owning a home is really a better option for you than renting.  We just finished discussing some of the advantages of home buying, but renting has some perks as well, particularly for young people like yourselves who are just starting out in life and need flexibility.  It can be cheaper to rent than to own, at least in the short term: as we mentioned, there are expenses beyond the mortgage to consider when owning a home, most of which (with the exception of utilities, in many cases) are covered by your rent.  It’s also much easier (and cheaper) to move when you rent; just give notice to your landlord, pack up any belongings, try to clean the place up to get your security deposit back, and head out to your new home.  When you own your home and need to move, you’ll need to put it up on the market, wait for buyers, and have to pay out a substantial portion of the price to brokers (as well as paying closing costs and other expenses on a new house, potentially).

For these reasons, renting makes sense for those times when you aren’t going to stay in the area for long, if you are attending college for four years and are then planning to move away from your alma mater when you finish, for example.  You should obviously crunch all the numbers for yourself whenever you are making big decisions about your living quarters, I just don’t want you to take away the message that everyone should buy a home, as soon as possible (if not sooner); that’s simply not the case.

Alright, students, that’s enough talking from me for now.  You have plenty to think about if you are looking into housing, and hopefully, you’ll be able to sort through all the hype you’ll read in the media about houses, for better or for worse.  *The school bell rings; several students say ‘Finally!’ as they quickly get up*  Have a good day of learning, all of you!

• How to Profit from Options
• Taxing Financial Transactions: Good Idea or Not?
• Book Review: Yes, You Can Still Retire Comfortably!

• Millions of U.S. borrowers owe more on their mortgages than their homes are currently worth!
• Supplement to Weakon 231: What Went Wrong
• First Time Home Buyer's Guide To Fixed Rate Mortgages

Happy Labor Day, Everyone!  I hope you’ve all had a good, cook out and picnic filled day.  Myself, I spent most of the day as I do every day since I got my new job: sleeping.  Yes, the joy of being nocturnal on a day devoted to sun, freedom, family, and of course, the pending return to school for any under the age of eighteen.

And it’s to those people I’d like to devote this week’s articles.  One of the concepts bemoaned in the financial media (including blogs like this one) is that one of the big holes in the American education system concerns the lack of financial education.  In spite of the fact that everyone needs to know how to manage their money while only a fraction of the student body will make their living applying the lessons from chemistry and English class (to say nothing of gym), there’s little to no mention of money management and smart financial moves in high school.

That’s where I come in.  This week, we’re going to go through some of the basics about personal finance and money management that somehow never come up in your high school career.  If you’re a high school student (or even younger; it’s never too early to get a handle on personal finances) wondering how to get a jump on your financial education without taking a few lessons at the School of Hard Knocks, you’ve come to the right place.  But don’t worry if you’re an older reader; the information is just as valid for you, and perhaps you can even contribute to educating the youngsters in the crowd.  Let’s get started!

The Lesson

Alright, class, settle down, it’s time for class to begin.  *The sound of chairs scrapping as students return to their seats.*  Today, we’re going to be talking about credit cards.  In spite of what you may have gleaned from television commercials, credit cards aren’t a source of never ending wealth.  Nor are they the devil in plastic form, as you may have heard from certain financial personalities.

Credits Cards: Neither Friends nor Enemies

In reality, credit cards are simply a way to borrow money.  The agreement you make with the credit card company is that when you make a purchase, they will pay the merchant, and in turn, you will pay them back at some point in the future.  Credit card companies will give you a period of time after they calculate how much you spent that month, called a grace period, before the bill is actually due.  If you pay off the credit card bill in full by the grace period, congratulations!  You don’t owe any interest on the money you borrowed from the credit card company, and because you had that money to invest during the interim, you can come out financially ahead of anyone who made the same purchases with cash or a debit card.

The problems start to arise if you don’t pay off the card in full each month.  After the grace period, you will start to be charged interest on your borrowed money, up to 30% or more annually.  Furthermore, the interest is usually compounded daily, which means that every day during which you have your balance, the amount you owe will increase just a little more.  Don’t panic too much, though; even with such high interest rates, having a few hundred dollars on your card that need to wait a month to pay off isn’t a huge tragedy.  If a sudden, unexpected expense, a sudden decline in income, or simply a miscalculation causes you to put more on your credit card than you can pay off in a single month, just pay what you can and resolve to save up enough money to pay it off in full in the next month or two.

Credit cards only become really dangerous to your finances if you fall into the trap of believing that, ‘Because I can afford the minimum charge, my debt is under control’.  Unfortunately, most credit cards require minimum charges that only a small fraction of your overall debt (usually only a few percentage points of your total owed).  If you only pay that amount, even a card with a modest interest rate, in the range of 10% or so, will cause your balance to increase each month.  Soon, you can end up owing tens of thousands of dollars, much of it from interest and fees rather than actual spending, and no choice but bankruptcy or other extreme measures in order to balance your account.

How do you dig yourself out of such a situation?  While I hope none of you find yourself owing a large amount to a credit card company, there are a few simple tips to pay off your debt.  First, don’t add anymore to your amount owed; if you use your cards at all, you must, MUST pay off the added amount each month (or better yet, declare a moratorium on credit card spending until you get your debt undr control).  Second, pay more than the minimum on your cards; as we just discussed, paying your minimums will at best lead to your account total slowly increasing.  Pay as much extra as possible, preferably on the card with the highest interest rate.  Third, keep repeating this process until all of your credit cards are paid off.  It’s really that simple; no elaborate plans needed, as long as you can control your spending and put as much as you can towards your debt.

Alright, so now you know how NOT to use credit cards, let’s consider what you should look for in a credit card.  A decent interest rate is always good; although you will hopefully never carry a balance, knowing you won’t have to pay an arm and a leg in case you do can be a real comfort.  You might also consider the rewards offered by your card; getting cash, travel miles or other rewards for your normal spending is nice, and if you never pay interest, it’s basically free money.  You should also look at the annual fees (if any), and determine whether the rewards will outweigh the costs.  And of course, intangibles like costumer service and easy to use websites can also help you to decide which of two seemingly identical cards is best for you.

That’s it for our introduction to credit cards; hopefully, you all know now how to avoid the pitfalls of credit, while still using them properly.  For your homework, check out your credit card statements (or those of your parents, if you don’t have a card already) and try to understand all the minutiae of the credit card language used.  If you don’t understand the language used, bring in your questions and we can discuss them tomorrow.  *The bell rings*  Have fun in your next class.

• Reconsidering Paying Down Credit Card Debt
• Thoughtful Thursday: Living Together
• Happy CARD Day, Everyone!

• I Am Not Against Using Credit Cards To My Advantage.
• Reader Question -Should I Pay Off My Car Loan With A 0% Interest Credit Card?
• Saving Money with Your Credit Cards pt 2