Early Start Retirement

Why You Should Take the Change in Your Tip Jar.

Working a job where you make tips is one of the most satisfying thing I have ever experienced. Even if it’s just a few cents or a dollar every purchase, it quickly adds up. When I first started making tips as a barista, I would always ignore the change at the bottom of the jar unless it evened out to a full dollar. This small daily habit could have ended up making me lose out on a considerable amount of money if I hadn’t noticed.

Below I have a chart showing how much money you could save in a year just by grabbing the leftover change at the bottom of the jar.

Days/week	Cents	Total in a Year
4	$0.40	$83.20
4	$0.25	$52.00
5	$0.25	$65.00
5	$0.40	$104.00

Although this may not seem like a lot of money compared to how much you make in dollars, you have to calculate the marginal cost/benefit. Marginal cost is how much it burdens you to do something. Marginal cost can include money, time, and stress. In this case, the marginal cost is small, because it’s money you have already earned. One inconvenience is getting the change into your bank account or into a more liquid form. But this can easily solved with Coinstar, or finding a bank with a coin machine. Just get a large jar in your house to keep your change in and convert it to cash once a year. The marginal benefit can be substantial, depending on the number of days you work.

Here’s the formula you can use to calculate how much you could earn:

Tips in a year=(Days working)*(52)*(Average change)

Do you grab the change in your tip jar? How much could you earn?

Hard vs. Soft Credit Inquiry

Creating an accurate credit score is a very complicated process. Many things decide your credit score, including those unrelated to making payments. One thing credit card companies don’t want to seeis someone gaining too much credit too quickly.

Quickly trying to open many lines of credit could be a sign that someone is heading into financial trouble or may be taking too many risks. In order to track how often people are checking or changing their credit, credit bureaus classify it as either a hard or a soft credit inquiry.

Hard Inquiry

A hard inquiry affects your credit score negatively. It tells the credit card company that you are trying to increase your lines of credit. Hard inquiries appear if you open up a new credit card, try to get approval for a loan, apply for a mortage, etc. Generally, you will have to approve a hard inquiry, but that is not always the case. Luckily, hard inquiries have a small effect on your credit score, and the effect lessens over time. If you find yourself having too many hard inquiries, the best option is to wait them out and keep your credit payments up to date.

Soft Inquiry

Soft Inquiries have no affect on your credit score. Soft inquiries occur when you track your credit or sometimes when a company asks to check your credit score. Some credit bureaus do keep track of the soft inquiries into your credit, but they do not affect your credit score and should only be visible to you.

How to know if someone will perform a soft or hard inquiry?

If the company asks your permission, it is likely a hard inquiry. Don’t fret however, because a single hard inquiry will have a very small effect on your credit score.

The Gas Method of Building Credit

It can be hard not to reach for your credit card when you see a shiny pair of shoes or drive by that expensive sushi place down the block before your next paycheck, but keeping your purchases consistent is the best way to track your credit. We’ve all put purchases on our credit card that we’ve forgotten about until we check our statement at the end of the month. These small inconsistencies can be prevented if you use the Gas Method.

What is the Gas Method?

The Gas Method means that you use your credit card only for purchasing gas. This method works because, for most people, gas is a purchase you have to make once or twice a month and is small enough to not use up too much credit, but large enough that you’ll remember to pay it off.

Did you make it?

No. I’m just giving it a capitalized name to make it sound more attractive.

What are the benefits?

Because most people use a set amount of gas each month, you are much less likely to be swayed by rewards programs or deals. Unlike with spending money on groceries or shopping, buying extra gas on your credit card is much less attractive. It is also easy to budget, because although gas prices and the amount you use may change, it is often within an easy to predict range.

Why gas? What if I don’t drive?

There are many other things you could use to get the same results. In fact, some people might prefer putting a subscription service on their credit card such as Netflix. That way, you know exactly how much you’ll be charged each month.

What purchases do you usually make on your credit card? How do you stick to your credit card budget?

Compound Interest: When Less is More

Did you know that you can invest less money, but still end up with more money saved for retirement? Because interest is compounding, money you invest grows larger the longer it is invested.

Here’s a helpful chart to help you understand:

chart

This chart shows $100 growing at 8% annually over 30 years. Compound interest means that the 8% interest rate keeps growing off the interest you earned in all the years prior. By year 10, your $100 is worth $200! With simple interest however, you gain $8 per year every year.

Compound interest is the reason why you can invest less money earlier, and get huge gains in the long term.

Take the example of Chloe and Zack. Chloe invests $2,000 each year from age 20 to 30. Zack invests $5,000 each year from age 35 to 49. Zack is investing more money, but Chloe has her money invested for a longer amount of time. Here’s how their worth compares:

chart (1)

Although Chloe invests $22,000 dollars total, while Zack invests $75,000, she still ends up with slightly more money. That’s because Chloe’s investment had more time to benefit from the compounding interest. (Interest rate here is 8%.) Had Zack invested 5,000 for a couple extra years, or started investing a few years earlier, he could have caught up with Chloe, but at a much higher cost.

Not everyone is capable of beginning to invest as early as 20, but everyone should be aware of the benefits of compounding interest. Retirement is not about being rich, it’s about being money aware.

First Credit Card Mistakes To Avoid

Getting your first credit card can be a scary experience. Credit card debt can grow exponentially if you’re not careful and can affect your ability to buy a car, a house, or even get a job. Ideally, spending money you don’t own is never a good idea, but it’s not always practical. Whether for building credit, or making end of month payments, here’s the most common credit card mistakes new credit card users make.

1.) Carrying a balance month to month.

I’m not sure what started this myth, but it is NOT TRUE. Carrying a small balance from one month to the next does not help increase your credit score. For the best results, pay off each balance in full at the end of the month.

3.) Ignoring your credit utilization rate.

Even if you pay off every cent each month, you may still be hurting your credit score. Credit companies also like to track that you are not using too much of your available credit. Although this has less of an impact on your score compared to other things, lenders want to see that although you have credit available, you are not in a position to be using too much too often. If your credit utilization is above 30%, call your bank and ask for a raise in your available credit. This way, you can keep your spending the same and reduce your credit utilization. However, raising your available credit may result in a hard inquiry.

4.) Too many hard inquiries.

If you apply for a new credit card, increase your available credit, or apply for a loan, you will likely have a hard inquiry reported on your credit report. A hard inquiry negatively affects your score because it shows that you are gaining too much credit too fast. Don’t worry, because a hard inquiry is only reported for about 2 years. Checking your credit score for non-lending purposes (like if you are using an app such as CreditKarma), is a soft inquiry and will not affect your credit score.

5.) Not tracking your credit.

In this day and age, there is absolutely no excuse for not knowing your credit score. Tracking your credit score is the best way for you to learn how changes in your spending affect your credit. It is also important because the credit bureau might make a mistake in your credit that could go undetected until you need to take out an important loan. You can dispute errors on your credit card, but only if you find them.

6.) Overvaluing the rewards.

Almost every credit card company offers rewards based on how much or where you decide to spend your money. Any program that encourages you to spend money in order to make money should make you very nervous. Credit card companies offer rewards because they know it encourages most consumers to spend more money than they initially would. A 3% cash back rewards may sound like a lot, but often times you will spend more than 3% in anticipation of rewards.

What’s been your biggest credit card mistake? What helps you stay on track of your credit?

Acorns: The Best Way to Invest in Your 20’s

I LOVE my Acorns account. I am not being paid to say this (although… if anyone from Acorns is reading this…). I am constantly trying to get my friends and kids in my classes to start using Acorns and begin investing with ease.

Two years ago, I was a senior in high school with a job at my local movie theater and lots of expendable income that was being funneled into clothes and junk food. After a lesson on investing in my statistics class, I started looking for a simple way to invest. Acorns was the only app I found with easy accessibility and was free while I was a student.

Features

Acorns is a great investing app for your 20’s because it is almost all mobile and focuses on small and consistent investments. You can set up recurring investments or round ups. Round-ups is a feature where Acorns tracks your spending and will “round up” each purchase to the nearest dollar and invest that amount once it reaches 5 dollars. For example, If you spend $3.78 on coffee with your debit card, Acorns will track that and put .22 cents in your account from your bank account. Although this might sound small, I’ve had over 400$ automatically invested from round ups in the past 2 years. This is a great tool, because it forces you to invest more if you start spending more.

Photo by Steve Johnson

Recently, Acorns unveiled Acorns Later which is a retirement account managed by Acorns. They help you decide whether you should start a Roth, Traditional, or SEP IRA. These accounts are great because they have low fees and offer tax advantages over a regular investment account.

One thing to watch out for…

If you are not a student, and are therefore not eligible for Acorns for free, then there is a flat $1 monthly fee if you have under $5,000. This could be expensive depending on how much money you are investing. For example, if you only invest $20 a month, then that is a 5% fee. On average, you want to be making more using Acorns than you spend on it. If you can’t spare about $50 a month on average, then I would recommend looking into other sites with free introductory rates. For accounts over $5,000, there is only a .25% fee which is a great rate for ETF’s.

How to Stop Compulsively Checking Your Cryptocurrency Wallet

Owning cryptocurrency can be torture when you are constantly seeing fluctuations in your coin’s value. If you find yourself constantly watching the value of your cryptocurrency, check out these 4 tips to help calm your paranoia.

1.) Remind yourself to think long term.

When cryptocurrency prices fall, it’s easy to immediately feel like you have lost money. This could cause you to sell your coins as soon as the price drops below where you bought it. When prices do fall, (and they most likely will) just remind yourself that cryptocurrency is incredibly volatile and will likely go back up in the coming days or months. The money isn’t a lost until you sell it for a loss.

2) Think of your cryptocurrency as money already spent.

Although cryptocurrency prices have historically risen after every fall (not including the dip we are currently in obviously), that is based on a relatively short amount of time. Even Bitcoin, the oldest cryptocurrency, has only been around since 2009. Big gains come with big risk, and cryptocurrencies are definitely a big risk. Invest as much money as you are willing to lose.

3.) Keep cryptocurrency a specific (and small) portion of your portfolio.

The biggest problem when I began buying cryptocurrency was I never knew when to stop buying. Since prices were falling, it always felt like a good time to buy. Although this wasn’t a horrible mindset, it easily led me to investing twice as much as I intended. Decide how much you want to invest, and what portion of that you want to be in cryptocurrency. This could be a set amount of money that you convert to cryptocurrency and then hold, or small chunks every few paychecks. Remember, never keep all your eggs in one basket. And, no, just investing in many types of cryptocurrency does not give you a diversified portfolio if that is all you are invested in. Don’t stop putting money in stocks just because you are also investing in Bitcoin.

4.) Invest smaller chunks over a wider period of time.

Even people who closely watch and analyze cryptocurrency prices often make mistakes or incorrect assumptions. Just like with stocks, it’s often a losing game to try and time the market. Putting smaller amounts of cash in over a wider period of time will help lessen your fear of missing out if prices drop.

Be careful of putting too small of sums in too often however, because many wallet companies-such as Coinbase- have a flat fee for every cryptocurrency transaction.

What tips have helped you stop the endless cryptocurrency stress cycle?