Learn VS Earn

In Financial Literacy today we were talking about resumes, jobs and interviews and while talking about where to apply for jobs, a discussion began about Learning V/S Earning. While being young and inexperienced may lead many students into thinking that low wage manual labor jobs are their only option, I showed that there is a whole world (business park) of options.

The Deseret News had an article about the 50 best companies to work for in Utah. Of the top 10, most students had only heard of one company.  My point was that of all of the companies in Utah to work for, why limit your search to the same companies that most other high school students look to. There are great companies in the various Business Parks along the free-way.

Now, can a high school student expect a high paying part-time summer job? No, of course not. But what if that summer job could be leveraged into a high paying post-high school job to help finance additional certification/education?

While your expenses are low (there may never be another time in your life when so much of your costs are being paid by someone else) what wrong with a job that may not even pay? That's right, work for free! Your payment will be experience and networking. These will pay you more in the long run than any minimum wage job ever could.

Go knock on the doors of your local business/technology park, dressed professionally, with copies of your resume in hand and start learning!

But what if you really want to own your own business or there isn't a business/technology park near you? Start a Summer Entrepreneurial venture where you can learn about starting and running a boot-strapped business. It may be small, but your gaining experience, not just doing a task.

DECA & SLC Comi Con Partnership

Below is an affiliate link Salt Lake Comic Con has provided to Utah DECA to share with friends, family, and co-workers. When anyone clicks on the link to purchase tickets, photo ops, autographs, or other event admissions, Utah DECA will receive 10% of of the purchase. We will use money generated for student scholarships.

https://goo.gl/uYGqCu

Salt Lake Comic Con has been an excellent partner for us. They are providing incredible access in addition to almost $20,000 in ticket value. 

Graphic for the 60/20/10/10 Rule

How the 60/20/10/10 Rule Saved my Family Vacation

60/20/10/10  No this is not some type of date or the GPS coordinators to buried treasure. However, given some time it will help you to create your own treasure. The 60/20/10/10 rule outlines your spending behavior and how it can help you create wealth.

60 - This is 60% of your NET income (paycheck = money after taxes) that you can actually spend on living expenses. Housing, Food, Transportation, Insurance, Entertainment must all be covered by this 60%!

20 - This 20% represents your Savings/Investing priority. When you are young or just beginning your budgeting process, this 20% is marked as Savings. However, once your savings goals are achieved this will become the amount you are Investing. Moving this amount from Savings to Investing needs to be done as quickly as possible.

10 - This 10% is opposite of the above 20%. Meaning, that while your first priority is to Save at a rate of 20% of your income, you will be simultaneously Investing 10%. Once your 20% Savings goals are realized you will then add this 10% to the 20% for a total of 30% into Investing.

10 - This other 10% is for charitable contributions as you see fit. This money is used to make the world a better place. You can spend this money on charities, churches, or to cover volunteer expenses. Once into retirement, your efforts to Save and Invest may then enable you to increase this amount well past 30% of your retirement "draw" to help those around you.

Some GREAT Savings Goals.

As mentioned above you will save 20% until your savings goals are achieved. So, what are some Savings goals?

1. $1,000 Emergency Fund. This is your problem solving money. Car and home repairs. This is your fist line of defense for your finances. 
2. 3 Months worth of Expenses (not your usual Net income but your usual monthly expenses. In a serious emergency you should be able to find ways to stretch this money to 4 or even 5 months)
3. 4-6 Months additional worth of Expenses based on job security. Once your initial 3 months savings goal has been reached you may want to consider expanding this to six months. This decision would be made by considering how likely you are to loose your job and how long it would take you to replace that income. If you are self-employed I would highly recommend having six months of income. If you are in the IT industry I recommend it because, while finding  a new job may not take much time, it may require relocation costs. If you are a elementary school teacher with more than three years teaching then I would not recommend extending beyond 3 months. 
4. Periodically you may want to drop from 30% Investing back to 20% Savings and bulk up your Emergency fund or your 3-6 months Expenses as your standard of living increases and the amount you need to sustain your expenses increases. 

So, how did the 60/20/10/10 rule save my vacation? Two days before traveling to Yellowstone this summer with my young family I received a recall notice concerning the power steering of my car. With no time to schedule the repair we ventured off on our family adventure. Just outside of Pocatello Idaho the power steering failed. I called the local dealership and took the car in. Within the hour they determined that the car "could" be driven, but a part needed to be replaced in order to fix the problem. Without that savings our trip would have been over shortly after it started (I would not chance completing a driving trip through Yellowstone with a young family on "iffy" power steering.)

Instead, I called a few car rental places and found a suitable replacement (in truth, an upgrade) for the car and continued the trip. While the car rental basically equaled the cost of the deposits we would have lost if we canceled the trip, it did allow us to enjoy Yellowstone in a more comfortable vehicle and we were able to create great family memories.

Of course the aftermath of dipping into the Emergency Fund is that I have now switched my 20/10 cycle away from 30% investing back to 20% Savings until the Emergency Fund is back up to $1,000 which will only take a couple of months. Then I will switch back to 30% Investing.

I was so grateful that I had access to my $1,000 emergency fund. It kept my family safe and provided a way for us to continue with our trip and get back home without adding much additional stress to the break-down.

ContEnd to the End

Contend: v. To compete for something; engage in a contest; measure oneself against others.
     Dictionary.com

Continue to the End = ContEnd

The Number 1 Reason for Entrepreneurial Success is Perseverance.

You must fight your way through problems. Entrepreneurs are problem solvers by definition. You saw a need in the market and you filled it (See a Need... Fill a Need). Problems are going to arise, are you going to rise to the solution?

I challenge my Entrepreneur and Financial Literacy students to fight for your education. Don't take the easy way out. Don't change the project (goal) because the project (goal) became difficult. When challenges come and the projects seem impossible, reach out, find a mentor (teacher, family, or friend) who can show you a clear path and get you back on track.

Go ahead, do something great with your class projects... you can do it, others can help, and ContEnd with the projects.

Bootstrapping - How to start a business on just your good name.

In Accounting today we were talking about "increasing" your debt. This relates to A.P. (Accounts Payable) and how a Credit to AP "increases" your debt. Thankfully, many of the students took issue with increasing your debt as a bad thing that should be avoided. However, I also noticed this as an opportunity to talk about the power of the A.P. and how it can be leveraged to start or grow your business.

Accounts Payable - A.P.: This is a liability (debt) that you owe a company for products/services. In a sense, its legalized shoplifting because you are leaving with supplies/inventory without paying for it.

Vendor: A Company that your Company buys items from. Most "people' are not familiar with all the companies that act as Vendors. The customers of Vendors are other businesses. Also knows as B2B's (Business to Business).

Credit: Your trustworthiness, and a judgement of your ability, to  pay for something later. (Having a friend buy your lunch today with the promise to pay them back.)

Capital: The money necessary to start and run a business. Usually through a loan or personal savings.

Widgets: Some "thing" that your business sells or uses to make the products or services that you sell.

Terms: In store Credit allowing you to pay for something after receiving it. Usually there is a discount if you pay early.

Bootstrapping: Starting a business with little or no Capital.

For simplification, lets say you are a master-negotiator and are able to secure Terms on your first shipment of Widgets with a Vendor. (In reality, many companies require a credit check or cash up front for new accounts.) Also, for simplification, let say that you are going to sell the widgets for double your costs ($5 = $10).

Step 1: The Vendor is going to extend (give) Credit to you. The Terms of the Credit will allow you 30 days to pay for the widgets. The 30 days begin on the date that the widgets are shipped from the Vendor - NOT from the date that you took delivery.

Lets say shipping took three days. You now have 27 days until you must pay for the widgets.

Step 2: Because you are smart, you have already "pre-sold" some of the widgets. So, once you have the widgets, you deliver and collect payment for the pre-sold widgets (and sold more) and begin selling all of the widgets. Your goal is to sell all of the widgets within the remaining 27 days. The sooner the better.

Step 3: Set aside ALL of the money from the first half of the widgets. Since you have doubled the selling price of the widgets, selling half of the widgets actually pays the Vendor for the whole order! Pay the Vendor early and you may get a discount and become even more profitable.

Step 4: You keep all the money from the second half of the order, or you can use this money for an even larger second order to grow your business! Repeat the above steps each month (or even more often) and next thing you know your hiring employees!

Auto Financing - The myths, maths, and minutia!

Last week I went over how to find the best deal on a car. If you need a refresher (or just a jump link) its called: Buying a Car in the Digital Age.
This week I'll cover how to purchase the car using someone else money.
But first, a couple of caveats and exclusions. You are looking to finance a car using a Simple Interest Loan (not compounding). The loan amount includes taxes, registration, and any and all doc fees minus your down payment. (These should be disclosed before signing any paperwork... or walk out!) and will typically add another $2,000 to the price of the car.
Are you looking for a $10,000 car OR a $10,000 loan? A $10,000 car will have a loan amount around $12,000. And a $10,000 loan would be for a car around $8,500. So with those items in mind, on to the Myths of financing a car.

Auto Financing Myths:
Myth 1: The interest rate that the bank quotes is the rate I must pay... you can't fight the system.
WRONG
The system is designed to be fought. Its asking for a fight. Bank/Credit Unions are looking to cover their costs.
Strategy: Negotiate for a better rate! Show that you pay bills on time and that your job is secure (if you do pay your bills on time... you do pay your bills on time, right?)
Effectiveness: Low - Most banks pull "credit" information from the same sources. Showing that you pay your cell phone bill on time has already been taken into consideration before they called you back with the rate. But it does show that you are prepared and that you aren't going into this loan half done.

Myth 2: I bank with my bank so I can't get a loan at any other bank.
WRONG
It is true that you will need to set up a checking account with the bank that is providing (servicing) the loan, but most banks/credit unions require $10 dollars or so to set up the account.
Strategy: Shop around for better rates!
Effectiveness: High - Almost every month there will be a bank or credit union that is offering a sell on auto rates. This is one case where you can literally save by shopping.

Myth 3: The terms that they offer are the best I can hope for.
WRONG
Most banks/credit unions have a "table" that they use to determine the number of months that you can finance the car (terms). This table shows that as the loan amount increases the number of months increase. Hence, the more you finance, the longer you can take to pay it off. The longer you take to pay it off, the lower your monthly payment.
Strategy: If needed, ask for a longer term. Your loan amount may be just below the threshold and they may give you an extra year to pay it off just because you asked.
Effectiveness: Maybe - It just depends on how close your finance amount is to the cut-off limit. All they can say is no. CAUTION: I don't recommend extended terms for used cars. Some of their life-span has already been used.

Myth 4: The monthly payment amount the bank quotes me is the amount I must pay for the loan.
WRONG
Here is where the banks make their money. The thing is, a bank loan is simple. However, the banks want to cover their risk as much as possible so they add extras into the loan. These extras benefit the bank, but you pay the fees.
Strategy: In Auto Financing Maths, I outline how to catch the bank in this small little con. But ask for these extras to be removed from the loan. GAP insurance on a brand new car is the only extra that I recommend you pay for. I call this one a "stupid tax" for buying a new car instead of quality used one.
Effectiveness: High - Asking for the life insurance policy and other "extras" to be deleted from the loan will definitely lower the monthly payment. After all just a Quarter a day is $7.75 a month, $93 a year.

Auto Financing Maths:
A Simple Interest Loan means that you have a fixed interest rate and a fixed time period to pay the loan off. Calculating a car loan is... simple. If you have a cell phone calculator you can start saving money on your next auto loan.

Your loan is made up of three parts.

1. The loan amount (Principle)
2. The interest rate (Rate)
3. The number of months that you will pay on the loan (Time)

Mathematically, your auto loan is expressed as:
Payment = Principle X (1+Rate) / Time    OR    I = P X (1 + R) / T

Suppose you were borrowing $9,000 for 36 months at 12% interest.
Pmt = $9,000 X 1.12 / 36
Pmt = $280.00

You will be paying $1,080 in interest PLUS the original $9,000 back over the course of the 36 months for a total of $10,080.00. (9,000 X 1.12)

Auto Financing Minutia:
When the bank calls you back with the loan approval information they are going to supply you with three pieces of information: The interest rate, the term, and the payment.
The thing is... the math wont work.  When you take the loan amount, multiply it by 1 plus the interest rate, then divide it by the months, the answer will be significantly less (like $50 a month less) than the quote from the bank. Why? Math is math. It should be the same, except the bank has added Extras. See Myth 4.

Extra #1, GAP Insurance: Not needed if the value of your car is greater than the depreciated cost of your car. Typically needed on new cars. Not needed on cars where blue book value is significantly greater than the loan amount. If you are confident that the value of the car is greater than the loan ask the bank to delete GAP insurance.

Extra # 2, Life Insurance: The bank want's to take out a life insurance policy on you so if you die the insurance company will pay the bank money. This disturbs me on a personal level. I understand their are exceptions to the scenario that I present, also, in the event of your death the car must be paid for. Lets say that your death come at the hands of an auto accident and that the car is totaled. In this case the auto insurance will issue whoever owns the title (the bank) a check for the blue book value of the car the moment before the accident. The bank would, at this point be paid for the totaled car. So, what point is there in the bank receiving a double payment for your death through the life insurance policy. Call me cynical but it just seems a bit wrong for the bank to make extra money through my death.

Extra #3, Road Side Assistance: Most auto insurance companies add thin into their insurance quote for around $10/ month anyway. So, if you already have Road Side or AAA then you don't need duel or even triple coverage through your loan. Besides, how many people think about their auto loan's roadside assistance when you have a flat tire on the side of the road. Auto Insurance YES... Auto Loan NO.

Extra #4, Dent Insurance: I don't know what to say about this. If its a used car... well then its a USED car. It probably already has a ding or two. Life is life deal with it and move on. Dents are just stories with out word... or something like that. Now, if you bought a new car.... See the above. Its a car. Life Happens. Or... pay yet another "stupid tax" for buying a new car.

If you finance through the Dealer expect to find even more or different extras!
Just remember, you don't need to buy extra's that you don't want. If you feel like you really don't want to buy anything except the car keep telling the financier "NO" until your calculated payment and the banks/credit unions quote match. $15,500 * 1.045 / 60 = $269.96

In the end financing a car is a lot like going to a World Buffet.
There are lots of options; some taste good, some taste bad, but you always have to pay the bill.