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Make Your Money Work

For your reading convenients below you will find all the Make Your Money Work published in 2017

January 2017

By now, we've drawn up a budget, looked at our monthly expenses, calculated how much we have at the end of every month, and started increasing our net worth. So, what's next? Last time we talked about the extra cash available to us. After we set aside money for saving ($300,) we still had $300 left over. This time, we're going to focus on that remainder that you've got no idea what to do with. There are quite a few things you can do with this left over cash. You can put it toward a goal that you want to achieve in the short-term, like funding a vacation you plan to take; you can use it to fund the expensive dates you will be going on now that you've successfully gotten rid of your overspending ex-significant other; or, if you choose to continue on with this series and keep trusting my advice, you can make a smart financial decision and invest it. "Ok...So I've heard this word, 'invest,' but (as an aside) I don't quite know what it means. So, Munawar, what does 'invest' mean?" I'm so glad you asked! Although, even if you hadn't asked, I would have told you anyway because I need to write something. But thanks for the validation! When you invest your money, you give up a certain portion of it in the hopes that you'll get a return on it. A return is just that: getting it back. What's the point of giving up your money only to recover it later? Well, the point of investing is to get a "positive return." This means that you get back your money, and some more money, and then some more money, and then some more money, and then...more money. A negative return, on the other hand, is when you lose money. So you give up your money, and that money loses value. For example, you invest $30, and that $30 turns into $5. That could very well happen when investing. A flat return follows the same concept, except you don't gain or lose anything. You just, well, get your money back. So which of these options is best? We all want more money, right? So I vote for the positive return. I hope you agree. If you don't, we'll part ways here. The money you're setting aside in your savings account is an investment. If you look at your monthly statement, you'll see a credit, called "interest payment." The bank is paying you to hold your money (called a dividend.) This means that on top of the $300 you're setting aside every month, you're also earning an additional $1 or $5 or whatever the interest payment happens to be. And, really, it's that simple. What! Don't give me that look! It really is that simple, for non-risk or low-risk investments. I promise, I didn't introduce these terms for nothing. Why do we call the savings account a non-risk investment? Because you won't lose the money you put into your savings account. Most savings accounts are insured up to a monetary value that's way beyond our means to achieve at this time, so even if something drastic did happen, you can consider yourself safe. Before we continue, we need to make sure we have enough in our "in case of emergency" account. Generally, it's advised that you have up to one year of expenses saved up. When we calculated our cashflow, we came up with expenses of $700 every month. This is the bare minimum that we need to survive. We also had a discretionary budget of $300. So our total monthly expense is $1,000. We want to save one year's worth of expenses. $1,000 per month * 12 months = $12,000. How many months will it take to save up this amount? Remember, we're saving $300 a month. $12,000 / $300 per month = 40 months 40 months / 12 months per year = 3 years and 4 months. So, it will take us three years and four months to save up $12,000. Isn't that a long time? No, it isn't, and here's why. Three years and four months isn't even the total time of high school or a four-year university program. It also won't be ten years into the future (we love counting decades as milestones.) And, in only three years and four months, you'll have enough saved up to where if you do lose your job, you'll be all right for one year while you search for a different job. So why is it so important to have this money? The money in your savings account is called a "liquid asset." Liquid assets are those assets that if something happens where you need access to the funds immediately, you can get them without a penalty. We covered emergency savings goals in this article. We established that you should have one year's worth of expenses saved up before considering further investment opportunities. We defined "return" and also saw how our savings accounts are investments with positive returns. We also learned the meaning of a liquid asset. Next month we'll see how to potentially grow our money quicker than in the savings account by investing it in the stock market.

February 2017

Last month, we discussed liquid assets. Recall that a liquid asset is anything that's immediately accessible. Examples of liquid assets are hard cash, and immediately available funds in any of your bank accounts. In other words, it's money that has a fixed value and is there whenever you want it. This month we'll talk about high-risk investments. Next month, we'll complete our investment overview by talking about moderate-risk investment accounts. For these accounts, you'll see that generally, the money you put into them will be "blocked," meaning that when you deposit the money, you will agree to keep it in the accounts for some finite time. If you pull the money out before this time elapses, you might be charged a penalty on the withdrawal, meaning that the bank holding your account will take some of the money you withdrew and then give you the rest. And, yes, the penalties can get very, very expensive. Moderate and high-risk investment accounts (at least the ones we'll be talking about) are considered illiquid assets. This is because the value of money will change over time. And it will change fast. So far, we've agreed that you should save $300 a month for three years and four months. But we can do better. This is where high-risk investing comes in. So, let's talk about growing your money by investing it. For this portion, I'm going to focus on two countries: The U.S. and the U.K. There are similarities between the two, but there are many, many different ways to invest depending on which country you live in, and writing about all of them is beyond the scope of this series. That's a fancy way of saying "I'm too lazy and feel like the U.S. and U.K. methods will suffice for most of us." The most obvious way to invest your money is to put it directly in the stock market. The stock market is a collection of "shares" in a company. For example, if you buy one "share" of Google (Alphabet Inc.,) you own a portion of the company. You gain or lose money according to the per-share price of the company. So, let's say you buy one share of Alphabet Inc. At the time of this writing, one share would cost you $809.84. On the end of the next trading day, Alphabet closes at $815.84. This means your money is now worth $815.84. Similarly, let's say you buy two shares of Apple at $115.97 each. That costs you $231.94. The next trading day, Apple goes up to $120.97, which means you've made $10. The stock market is considered high-risk investing. Let's say Apple instead fell to $110.97. Your $231.94 you invested is now only worth $221.94. Ouch! But the advantage to the stock market is that you have total control over where your money goes, as opposed to other funds where brokerage firms decide how to invest your money. So, while investing directly in the stock market is the option with the most risk, it is also the option that leaves you in control of how your money is invested. Also, your money will generally grow the quickest if invested directly in the stock market. On the flip side, it will also lose value the quickest if the market drops. In the U.S., you can use a mobile app called Robinhood to trade on the stock market. The app is fairly new, and it really is worth a looksy. Robinhood let's you trade on the market with no commission fees (meaning that they don't take a per-trade fee from you.) I have found the app to be mostly accessible on the iPhone. They also have no minimum deposit to open an account. The only downside is that unless you're a part of "Robinhood Instant," Your funds transfer will take time. This means that if the market drops and you want to buy in immediately and don't have the funds available in your Robinhood account, chances are you'll miss the low point in the market because your transfer won't complete for at least a week. In the U.K., while you wait for Robinhood to expand, you can use Interactive Brokers. They charge a commission fee based on the value of your monthly trades, so they're not like the Robinhood no-cost alternative to market trading. But fear not! Robinhood is looking to expand to the U.K., and once they do, you'll be in business. Here are some tips for investing. These are not definite rules, since investing in the market wisely comes with experience and sometimes talking to a financial advisor, but following these guidelines should keep your money relatively safe. Be aware that investing always comes with risk, and there is a potential for loss. You should always research a company before investing in it. For example, if the 52-week high for a company is $90.00 and right now the per-share cost is $89.00, you might want to wait for the share price to drop a little bit before investing. If you'd like to see a table of prices over time for a particular company, go to finance.yahoo.com and enter the symbol name of the company in the "Quote Lookup" box. The table that you will get is completely accessible, and should give you a general idea of the company's performance over time. You will also see statistics about the stock, such as current share price and today's low and high range. If you're using JAWS for Windows, you can pull up summary statistics for a stock by using the ResearchIt feature. Next, look at the P/E ratio. This is the ratio of the per-share value of the company to its earnings per share, or EPS value. Effectively using the P/E ratio requires us to take many things into account, such as the amount of time the company has been around, and its size. But what you should generally pay attention to is a negative P/E ratio, a P/E ratio of zero, or a P/E ratio that is undefined or one that "does not exist." All these situations indicate that the company isn't earning any money, and is probably not a good investment opportunity. Finally, take note of the dividend yield. This number indicates how much you get paid for holding shares in a company, and is the ratio of the dividend to the current share price. So, if we have the dividend yield and the share price, we can see how much we will get every year from the company by multiplying the dividend yield by the current share price, aside from any positive gain we'll get by the stock price going up. For example, let's say you invest in Apple, whose stock symbol is AAPL. At the time of this writing, Apple has a per-share price of $117.16, and its dividend yield is 1.95%. This means you get 1.95% return every year. To translate this into dollars and cents, let's do the numbers: x / $117.16 = 1.95% per year. Therefore... x = 1.95% per year * $117.16 per share is equal to... x = 0.0195 * $117.16 = $2.28 per share per year So for every share of Apple that we own, we will get $2.28 in dividends every year. Some companies, like Google, don't offer dividends, so you will see N/A for the dividend yield ratio. There are also stocks that are meant for investors to collect dividends. These stocks don't fluctuate much, but pay high dividends and are relatively secure. Low and high dividend stocks have implications of their own. Just because a company is offering a high dividend doesn't mean we should definitely invest in it. Some companies will offer high dividends simply to attract investors and drive up the value of their stock. If you're using the JAWS ResearchIt feature, your screen reader will pull data from Google Stocks. Instead of giving you the divident yield ratio, Google will show you a "Div/yield" field. In the listing for Apple, Google shows this: Div/yield 0.57/1.95. The first number is the annual dividend divided by how many times a year you get paid. Apple pays $2.28 per share every year, and they do this by paying $0.57 per share every quarter (2.28 / 0.57 = 4). The second number is the dividend yield--the percentage we talked about earlier. What's next for us? If you're like me and can't really stomach direct trading because of the risk involved, next month I'll show you some less risky investment opportunities. The downside to many of those opportunities is that they will require minimum deposits, but we'll cross that bridge when we get there. We'll talk about IRAS and ISAs (don't worry--I will explain what these mysterious abbreviations mean,) and soon enough you'll have the tools to secure your financial future. The advantage to what we'll be covering next month is that your money will essentially be auto-invested for you. So, unlike direct trading, a brokerage firm will handle most of the numbers for you. There are two types of funds we will cover: exchange-traded funds and mutual funds. These funds abstract away many of the details of the stock market and are generally considered safer than direct trading. Once we're done talking about investment opportunities, we'll discuss things like loans and credit cards (per reader request); and when to borrow and when not to borrow. And, as always, we'll do the numbers! Are you bored yet? That's ok if you are. I consider this article (and the next one) optional. If you've met your savings goal (and chances are that if you're a new saver, you haven't met your savings goal,) only then should you consider further investment opportunities. So don't be discouraged if I lost you 19% of the way through the article. High level investing is where the majority of us drop off, because it takes years to get to this point. What you should do is save this article and next month's article. When you're ready to go beyond a savings account, these two articles will help you get started. We discussed the difference between liquid and illiquid assets. With respect to stocks, we discussed some guidelines for investing, and we learned about the P/E ratio and dividend yield. Next month, we'll look at lower-risk investment opportunities such as mutual funds. If you have any comments on this article, you can Email me at my address above.

March 2017

Last month, we discussed stock markets and learned how we can begin investing in them to grow our money. But, it sounds too good to be true, right? Think about it: we find out what companies are doing well, invest in them, and become billionaires. Wouldn't it be nice if this was actually how things work? Well, they don't, and here’s why.

If you grow your money in the stock market by using a company like Robinhood or Interactive Brokers, the money you gain is called capital gain. And, as with everything else, the government will want a chunk of it! When you file your taxes and you have "realized capital gains," meaning you've sold off your stock and have pocketed the profit, the money you earned is taxable income. You'll have to report the gain on your tax form. "So Munawar, let me get this straight. I take my hard-earned cash, invest it by doing research, make some money...and some of that money gets stolen?" Yup.

"But..." Yeah, it really does work like that, no matter how many ifs, ands or buts you put on it. However, as with almost everything else, there are ways around this tax. See? You can play the game, too, and I'll show you how! Best of all, the methods we'll talk about are completely legal.

The answer to the stealing issue boils down to three letters. If you're in the U.S., your three letters are IRA. In the U.K., your three letters are ISA.
IRA stands for Individual Retirement Account, and ISA stands for Individual Savings Account. Wow, why did we in the U.S. have to throw the word "retirement" in there? That's, like, for old people, isn't it? Not necessarily. Let me explain.

An IRA is an account that you put money into. You can open one as long as you have taxable income. Notice I didn't mention an age here. That's because you can start as early as you want. The money that goes into your IRA is taxable, but the money that grows in your IRA is not taxable, meaning that your money grows without being stolen-- um--I mean, without being taxed. This is one type of IRA called a Roth IRA. The other IRA is called a Traditional IRA, where it's the opposite. The money you put into the IRA is not taxed, but when you draw from the account, that money you take out is taxable. Generally, we prefer Roth IRA's over Traditional IRA's because we expect tax rates to increase, not decrease. So it's better to pay tax now rather than thirty years into the future when you've got grandkids running around your recently-cleaned house, and you're trying your best not to yell at them, because, well, grandparents aren't supposed to get mad at their grandkids and all that.

You won't be able to open a Roth IRA if you make more than $132,000 a year. For a Traditional IRA, there is no income limit. Also, the maximum you can contribute to an IRA is $5,500 a year. This is across all IRA’s you hold. So if you have one Traditional and one Roth IRA, you can't put $5,500 into each IRA; although that would be nice, Uncle Sam is afraid it'd make things too easy for us if he lets us do that.

An ISA is similar to a Roth IRA in that you don't pay tax on gains. There are various types of ISA’s, though, and instead of going through them all, I'll give you a web address where you can learn more. www.moneysavingexpert.com
The short version to this website is that you can open a cash ISA or a stocks and shares ISA. A cash ISA is a savings account where the interest you earn is not taxable. A stocks and shares ISA is the U.K. version of a Roth IRA: you invest the money you put into this account, and any gains you earn are not taxed. The limit to the yearly contribution to an ISA is £15,240.

This is all dandy if I tell you these things, but it won't help if you don't know how to open one of these accounts. It's theoretical knowledge until we make it practical, isn't it?

So, let's get started! A word of caution before we move on. You cannot invest in a Roth IRA if you don't have taxable income; you will fund it using "after-tax income," meaning that if your income is made solely of government benefits, you cannot open an IRA. The same goes for an ISA. You are not allowed to fund it from untaxed income.

For an IRA, today's approach is to open a Roth IRA. The easiest way I've found to do this is to open an automated investment account. In this account, your money is invested for you, for a small fee (and by "small," I mean small.) Go to: wlth.fr/1S7AAfJ
and you can get started opening your Roth IRA. You need a minimum deposit of $500 to open the account. The link I provided will give you up to $15,000 managed with no fee; but, if you'd rather take the fee, you can go directly to www.wealthfront.com
and... well...pay a fee.

Wealthfront takes your money and invests it for you in a diversified manner. All you have to do is put it in, and watch it grow (yes, it really is that simple!)

In the U.K., you can use Nutmeg: www.nutmeg.com
They do what Wealthfront advertises: automated investing. Their fee is 0.75% per year, which is almost nothing for small-time investors. They will guide you through the process of setting up an ISA through a brief survey that will determine your risk tolerance. Then, you begin putting money into the ISA and watch it grow. Sorry guys, no referral link for this one!

There are other ways to open IRA’s and ISA’s, but to keep things simple, automated investing is all we'll cover. For those of you who are interested, you can open an IRA using Vanguard or any number of other firms. Be aware though that you will trade in these accounts just like we discussed last month. So, for a small fee, why not have someone do it for you?

We've now completed our discussion of investing. You can take a deep breath now, because starting next month, we'll get back to the normal people stuff that we all love: credit cards.

We covered IRA’s and ISA’s in this article. We discovered why it's important to put your money into one of these accounts, and discussed the tax breaks associated with them. Next month, we'll look at how we're doing with our plastics.

If you have any comments on this article, you can Email me at my address above.

April 2017

Really? You're STILL reading? I must say, I'm impressed! This month, we'll start a new topic. First, let's recap what we've learned so far.

We began by finding out what our monthly expenses look like. Next, we drew up a budget, so that we knew where every dollar went, and how much we needed to make to meet our expenses. After this, we made a discretionary budget. Next, we made a savings goal to start growing our wealth. After all this, we discovered we had left over cash, so we talked about ways to invest that money and make it grow; this included stock markets, IRA’s and ISA’s.

And this brings us out of saving money and into our next topic: credit! But fear not! Since we've had some heavy articles recently, I'll give you a break here and not discuss numbers, at all! No really, I won't! The downside is that you won't get any actionable information from this article, but it still has concepts that'll help you.

What's credit? Credit is some amount you have with some person or institution (like a bank) that lets you borrow money. But there's something we have to talk about before we discuss how to take peoples' money: a credit report.

Each one of us--if we've borrowed money in any capacity--whether it'd be a loan or by using a credit card, have what's called a credit report. This is a record of all loans we hold, how we're doing on the payments to these loans, etc.

In essence, your credit report is your trustworthiness to borrow and repay money. A lot of us subscribe to religions that believe in deities whose jobs are to keep a running total of our good and bad deeds. Credit reports are exactly this, except they exist in tangible form, and they only look at our deeds per money.

For example, if you have one loan, and you make all your payments to that loan on time, your credit report will reflect this, and your "credit worthiness" goes up. On the other hand, if you miss even one payment on that loan, your credit worthiness will drop.

Your credit worthiness on your report is determined by your "credit score," which is a formula that's hard to understand (so I won't make you look at an explanation,) but results in a number directly related to how well you manage your loans. So, as your credit worthiness goes up, your credit score rises; and, as your credit worthiness drops, your credit score will drop.

Your credit score is important, because when you apply for a loan, the lending institution will pull up your credit report and examine your credit score. If it's not good enough by their standards, they'll consider you to be unreliable and won't grant you a loan. A bad credit score has other implications too. Utility companies (such as your light company and water company) will make you pay a fee up front called a "deposit," because they want to secure some money in case you don't pay your bill. With a good credit score, you won't pay this deposit (Ah, you say, so therefore I paid a deposit when I started my utilities!) Did the lightbulb go off yet?

So, does this mean you shouldn't borrow money? Actually...it's the opposite! There's a saying: "Bad credit is better than no credit," and next month we'll discover why. (See? I told you I'd cut you a break in this article!) Seriously though, I've been waiting to write this series for a while now because I've personally observed that many of us visually impaired people don't have credit, even in our adult years. So, we'll learn together about this not-so-scary topic and hopefully stop shying away from the plastics (since, if used correctly, they can really help.)

We started into the topic of credit in this article and discussed credit reports. Next month, we'll get more technical and discuss smart borrowing...and, yes, next month we will do the numbers, so be ready!

If you have any comments on this article, you can Email me at my address above.

May 2017

Last month, we started to talk about credit. We discussed a credit report and why it's important you should have one. This month, we'll discuss why you should absolutely have a credit report, and we'll talk about how to manage your credit cards.

Ever wonder why college campuses are swarming with representatives from banks, begging students to sign up for credit cards? The first answer that comes to mind is the "these kids" response: "They want all these whippersnappers to get into debt early so they can be milked for all their money while they live with mom and dad."

While this is partially true, there's another secret to why they want the "kids" to sign up so early. As you get older, it becomes harder to start a credit report. The banks on college campuses brandish what are called "student cards." This means they're made exclusively for students: people who are in school (so might not be employed) and people who are understood to be just starting out (so a co-signer is not required.) What's a co-signer? It's someone who already has a credit report in at least fair health who signs on your credit card application, guaranteeing that you will pay the card on time. And, if you don't, the co-signer agrees to pay the card on your behalf. It's essentially someone acting as your financial guardian that gives the bank comfort.

As you get older and you have no credit report, you're more likely to need a co-signer to start a credit report by opening your first credit card. This means someone will have to tell the bank that they trust you and are willing to be responsible for your debt. And, finding someone to take responsibility for your debt is tough. For those of you considering to co-sign on someone's credit because you want to be nice, please don’t' do it unless you really, really trust this person to make their payments on time. If they don't, it will be your credit that will be at risk, because their debt is shared with you on a co-signed application, and the bank has every right to go after you as if their debt is your debt.

So, now that your newfound significant other has convinced you to co-sign on their new credit application after reading this article, let's talk about what you should be aware of in terms of credit cards to at least help them out before you dump them (wow, it's not really going well for your significant others, is it?)

When you open your credit card, you're given a credit line. This is the maximum amount you can borrow on the card before the bank slams the door in your face. When you borrow, you have a period of time, called a grace period, to pay that charge off of your card before you're charged interest on it.

Wait, what’s interest? Ah, and this is why people say credit cards are evil! Interest is a charge the bank charges you for borrowing money. When you opened your card, you saw a number called annual percentage rate (APR.) This number indicates, in a loose sense, how much money you'll pay per year if you hold a balance on your card.

So, if you pay your balance off every month, you don't get charged interest, and this is what the "plastics are evil" people don't tell you. But these same people are correct on one thing: if you keep a balance on the card, you'll get charged for it. How much you pay depends on your APR. We'll run through an example so you get the idea of how these numbers are calculated.

Let's say you open a credit card and are given a $1,000 credit line. At first, your balance will show $0.00, because you haven't used the card. Now, let's say you charged four things to that card. You used Lyft, which was $8. You went out to eat two days later, which was $12 (and you magically got there, because there's no Lyft charge to get you there, ok?) Two days after you ate some yummy food, you paid your light bill, which was $50. And two days after that, you paid your cellphone bill which was $100. After all these charges, your balance on the card grows to $170.

Now, assume the APR you were given is 22%. If things were simple, you'd say "Ok, if I'm charged 22% a year, that means 1.83% a month, so I will pay $3.11 if I don't pay off this $170 within my grace period."

But alas, because credit card balances fluctuate, just using the APR isn't an accurate approach to finding out how much you pay in interest. Instead of using the APR, creditors use the daily periodic rate, which is your APR divided by the number of days in a year. In other words, you're charged interest on your balance every day, not every year!

Also, the balance that you owe interest on is also a little bit of work. It's called your average daily balance, and is calculated by taking your balance for the day and multiplying it by how many days you carry that amount. All these numbers are added up and divided by the number of days in your billing cycle. Let's do the numbers so we can see how this works in practice.

First, our daily periodic rate is 22 percent per year / 365 days per year = 0.06% per day.

Next, the month we charged our balances on the card has 30 days. We charged Lyft $8 at the beginning of the month, held it for one day and then charged $12 on top of that. This leaves our balance at $20. Two days later we charged $50, holding a balance of $70. Finally, we charged $100, which brought the balance up to $170. We held this for 23 days (30 - 7.)

Assuming we let the grace period elapse and we don't pay off the balance, the numbers look like this:
$8*1 + $20*1 + $70*1 + $170 * 23 =...
$98 + $170*23 = $4,008
Next, take this $4,008 and divide it by the number of days in the month, or one complete billing cycle.
$4,008 / 30 = $133.60 daily average balance

With this number in hand, we can easily get how much interest we'll be charged in this month by multiplying the interest charge on the balance by the number of days in the month:
$133.60 daily average balance * 0.0006 DPR * 30 days = $2.40
This is how much the interest charge will be for that month. We can get more specific by taking grace period into account and running the numbers again, but I won't make you wade through all that! All you need to know is that if you don't pay your balance off, once your grace period elapses this is how your interest will be calculated.

The takeaway from all this is that you should bug your significant other to pay off their balance as soon as possible (don't worry about yourself, you're responsible anyway, right?) So, don't charge anything to the card that you can't pay off in a reasonable amount of time, and you'll be safe! If you use credit cards responsibly, they can really help you. In fact, you don't even have to worry about the numbers we showed. All these things, including APR, are meant only for people who carry balances for long periods of time on their cards.

We made up for an easy article last month by doing the numbers this month. But, unlike the common person, we actually know how creditors charge interest now! We discussed credit lines and why you should open a credit card as soon as you can because of the difficulties with co-signing. Next month, we'll finish off our discussion of credit by talking about what happens if you go over your credit line and other fees you should be aware of. We'll also talk about how to shop smartly for a credit card. If you have any comments on this article, you can Email me at my address above.

June 2017

By now we've done all the hard work in terms of credit such as calculating interest payment and having that totally awkward conversation that goes something like "My child needs a credit card!" "Ok, but don't help them!" "Why?" "Because...because...because...well, they could get you into a lot of trouble!"

So, what's next? Well, there's one more thing you have to be aware of when it comes to credit cards, and that's "hidden" fees. A hidden fee is when you get charged a fee and weren't aware of the fee's existence. For example, you could call a convenience fee a hidden fee, if it wasn't made clear to you that you'd be paying this fee until it's too late.

Creditors LOVE hidden fees! They're depending on you to not read the credit agreement and just click "I agree." But if there's one agreement you should read, it's the agreement the credit card company makes you sign before they give you a credit card. In the agreement, you'll be told about every fee they could potentially charge you. We'll discuss a few of them here.

The first fee you should be aware of is the late payment fee. If you miss a payment, three things will happen: First, you'll get charged for missing that payment. Second, your creditor will report to the credit bureaus that you've missed a payment. Finally, depending on your payment agreement, the creditor might hike your interest rate. So, instead of paying 13.2% APR, you'll now pay 29.99% APR. And, yes, they're within their legal rights to do all three things, so don't miss a payment!

The next fee to be aware of is the "over limit" fee. Some creditors allow you to draw over your limit without rejecting the charge. For example, if you currently have a balance of $1,000 on your card and your credit line is $1,000, the logical thing that should happen is that the next time you charge something, it will be declined by the credit card company, correct? Be aware that in many cases this is not true; they'll happily let the payment process, and then charge you an over limit fee. This is a fee you pay for every charge over your credit line. Now, eventually they will decline payments, but they give you some "breathing room" before they freeze your card.

By now you're going "Ok, this makes sense. I'm late, I get punished. I overdraw, I get punished. Fair enough." Aha! But all is not logical in the credit world! The final fee I want to bring to your attention is the annual fee. The annual fee is a fee you get charged to...wait for it...keep waiting...wait a little longer...keep the card open! Yes-- you get charged just for holding the card! If there's anything you must pay attention to, it's this final fee. Some credit cards have an "annual fee" listed. As soon as you open a card with an annual fee and your first-year elapses, you'll see a fee charged to your account. And every year after that, you'll see the fee reappear. They're taking money from you because they granted you the right to borrow money if you need it!

Also, with annual fees, you get charged the fee whether or not you use the card in a given year. Remember back to last month where we did all those fancy calculations and came up with how much we'll pay in interest at the end of the month, and concluded that if you pay off your balance, the interest charge is $0? Well, that's not the case here. The annual fee is a flat fee which you pay whether you like it or not, and it has no formula where if you work the numbers right, the fee will go down. Nope. If you have an annual fee, you're stuck with it until you close your credit card.

So, don't ever open a card with an annual fee! There are plenty of cards to choose from, and though the creditors might make it seem like their cards with the annual fees are the best ones to have, chances are they're not the best ones to have. You can find many cards with no annual fees. Filter your search to only show you cards with no annual fees and you'll be good to go!

In essence, the smart card shopper looks for no annual fees, a low interest rate, and (though it's pushing it a little) a card that declines any further transactions if you're over the limit and doesn't charge you over-limit fees. Of course, you shouldn't go over your limit in the first place... "But Munawar, the significant others and things...you know..." Yeah yeah. I get it. Impress them all you want, but if you're trying to get money out of them, the best way to do it is to swipe your card and fake-panic when the message "DECLINED" flashes across the terminal. (No no, don't really use that as your tactic, okay? This is a financial series, not a "How to con your significant other" series.)

We discussed some fees with credit cards and how to avoid them. We also specified how to be smart when shopping for a credit card. Next month, we'll review everything we've talked about since there's been so much information, and then we'll bring this series to a close.

If you have any comments on this article, you can Email me at my address above.

July 2017

We've completed our discussion of finances, and changed significant others a few times over the course of this series. So, let's summarize everything! Ready?

We started out by getting a handle on our current expenses. It's important to know how much you're spending on a monthly basis; this is the first step to financial success. If you don't know what your expenses look like, it'll be difficult to create realistic budgets and savings plans. We talked about how to determine how much we're left with, and then we talked about cashflow. Cashflow is literally how your money flows: what are you taking in, and what are you giving out?

After we determined our cashflow, we started making budgets. We talked about fixed versus variable expenses where the former is a mostly constant expense and the latter is an expense that changes relatively drastically month to month. Rent would be a fixed expense, and transportation would be a variable expense.

When you create budgets, you allocate monies for certain categories of your spending. The agreement is that once you spend on a category what you've allotted for it, you stop spending on that category (except food--please don't starve yourself because of what you read here!)

After we made some budgets, we created a savings plan and increased our net worth from the remainder of cash we had left. Net worth to us at that time was how much cash we had in our savings account. But at the end of this article, I'll give you the evolved form accounting for all of our investments.

We also started investing the portion of cash we didn't want to put into savings. Our goal by this point was to become financially independent, no longer needing our jobs to make ends meet. We first mentioned how much you should have in your savings account as liquid assets before starting to invest. Then, we talked about the stock market and we covered illiquid assets (theoretical cash, for lack of a better term.)

We then moved on to allowing our money to grow tax-free by putting it into an IRA or ISA. The advantage to these accounts is that while you're taxed on what you put in, your money grows without capital gains tax. In the U. S., the Roth IRA is typically the better option because we expect taxes to rise as the years progress, so it's better to pay tax now rather than pay tax when you draw from your IRA many years into the future.

Our final topic was credit and we began by discussing what credit actually is. We discussed credit reports and credit scores, and concluded with some implications of having no credit.

We then discussed why you should get a credit card as soon as possible because of the difficulties with co-signing. We also talked about interest charge and we saw an example of how the interest payment is calculated.

Finally, we discussed some fees that creditors will charge to your credit account such as late payment fees and annual fees.

Now that we've reached the end of our discussion, let's revisit our definition of net worth. We said net worth was the amount of cash we had available. But, as you invest your cash, your net worth becomes the theoretical sum of all of your assets, combined. If you hold 20 dollars in stocks plus 50 dollars in liquid assets, your net worth is approximately 70 dollars (it's never exact due to the value of currency and all that stuff we don't really care about.)

And this is where we part ways. For those of you reading this article first to judge whether or not you should read the series, be aware that I've left out a lot of information here since this is an overview only. Within the series we've provided many examples with actual numbers to show you how all of this plays out. So, go read the series! For those of you who've followed the series to its completion, I hope you've gained some knowledge from what we've talked about. We really did grow our financial IQ together and hopefully now you have a better understanding of how money works.

This is the part where authors usually write how much they've enjoyed writing the series, to make themselves sound all important and things and pretend that you actually care how much we've enjoyed it, so I won't do that! My hope is that you, as the reader, enjoyed it. I tried my best to keep the articles fun, because financial articles can be rather dry.

Some of you have emailed me with questions about credit and other financial topics. While I won't be writing anymore, I'll still be available at my address above. so you're welcomed to email me there. And, if your question is something I think others should know about, you'll see an article from me on it in an issue to come!

August 2017

Make Your Money Work segment has ended!

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THE END