From the monthly archives:

August 2009

This is a guest post from Laura of Green Panda Treehouse. Laura is a twenty-something woman working to improve her finances and reduce debt. She writes about personal finance for college students and grads at Green Panda Treehouse. Be sure to subscribe to her feed so you can get more great content from her.

Some college students in the next few months will be getting some money from their university. After their tuition, room and board, and books have been paid for, there may be money left over from your scholarships and grants. Your tuition refund is a fantastic way to start an emergency fund painlessly.

How much do I need in my emergency fund?

It depends on your circumstances, such as if you’re a single student with little expenses or if you’re going to school while working and taking care of a family. The more responsibilities you have, the more reasons you should have a healthy emergency fund.

Ideally you should have 3-6 months of necessary expenses in your emergency fund. Remember you need the money to cover essential expenses like food, rent, gasoline, utilities, etc. Also include money for items such as possible car repairs and semi annual insurance bills.

Since you’ll need this money in an emergency quickly, consider using a savings account. Don’t put your emergency fund money into the stock market, where returns in the short term are volatile.You need this to be safe and free from you spending it. Many banks have high interest saving accounts you may want to consider. You want this money to grow without putting it at risk.

If you’re currently working while attending college, have a portion of your paycheck transferred to your emergency fund. You’ll become use to the slightly small paycheck as you start savings. Along with your tuition refund, this money will increase your assets without causing a huge drop in spending money.

Build up the emergency fund to the point that if you lose your job, you can survive until you find a new one. If the unemployment problems continue, you may want to be an even bigger emergency fund.

Use it ONLY for emergencies.

I suggest reviewing your financial statements from the bank or using Mint to see what past emergencies have come up. You may see a trend of car related expenses, in which case, you’ll include that into your emergency fund planning. You may also notice that you didn’t have emergencies per se, but you failed to anticipate expenses and were caught off guard.

If you run into a real emergency, then pull just enough money out to cover it. Focus on replenishing it as soon as you can.

Do I pay off debt or use the money for savings?

If you have high interest debt, like credit cards, then tuck away a month’s worth of expenses away first from your tuition refund then go ahead and pay that debt down with the rest of your money. Every semester, repeat the process until you’ve paid off your high interest debt and then use the money to save towards your emergency fund goal.

What of I have no debt and I already have an emergency fund?

Fantastic job! You’re now in a position where you get to decide which goal to pursue next. I’d look at your goals in 5, 10, and 20 years. Depending on where you’re at now in the stream of things gives you an idea of what you should put your money towards.

Which of the following are you planning on doing?

  • Start your own business
  • Getting married
  • Buying a car
  • Buying a house
  • Retire (early)

After you decided on what you’ll probably do, then see what would be the best step. If you plan on owning a home, start setting aside money to make a sizeable down payment. If you want to retire early, invest your money into an IRA. In general if your goal is in less than 5 years, save the money. If it’s longer, like 10 or more years, then invest.

I’d also recommend skimming 10-20% off the top and just splurge. Take a vacation or spend money on your favorite hobby.

Your Take

How have you used your tuition refund?

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Sometime in the next four-five days I am going to be a dad again. My second child is on the way any day and we can’t be anymore excited about it. It has been three years since we had a newborn in the house so I am sure I have lost the touch but I hope it is like riding a bike. My plan right now is to run some guest posts for next week so we can get settled in and adjusted and then get back on the wagon with regular posts again.  I hope you enjoy the posts and don’t miss me too much. Oh and if you follow me on Twitter you will probably know when the baby is born and you may even get a pic.. In other news I became a friend of this week so you will now see my posts in a neato red box on their aggregator. Now on to the five posts I selected from my Twitter faithful:

@Matt_SF with Steadfast Finances had a great list of ten benefits of using a headhunter. Now to be honest I picked this for the picture, seriously though it is a great list and he makes good points for the use of a headhunter. I dont’ know that you would ahve this option in all industries but there are a large amount of hunters out there.

@NealFrankle, the Wealth Pilgrim, had a broken toilet and wrote a great article about his adventure in toilet repair. I personally like to think of myself as a handy guy so I wouldn’t think twice about repairing the toilet. It is good to get the perspective from the other side though.

@MoneyManagement from Blogging for Change ran a piece on the other consumer reporting agency. My wife used to work at a bank so I had heard about ChexSystems before. It is crazy to think that past mistakes, like bouncing checks, could keep you from being able to open up a bank account at another instituition.

@BeatingBroke seems to have got beaten down, but not out, recently when his wife decided to quit her job. This is a great article that shows how money is not the only factor in maintaining a job. Employers who suck are going to lose employees regardless of how much they pay them, hopefully the final chapter of this story turns out prosperous.

@ToughMoneyLove begs the question what lessons have you learned from the great recession? This article explores some of the lessons you can take away from this epic economic downturn. My favorite point of the article is “When it comes to managing the economy, there are no experts.”

That is it for me this week, if you want to be included in next weeks Friday roundup follow me on Twitter and send me a link to your best post of the week on Thursday. See ya next week, well a little bit but I will probably be busy with  the new baby.

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What is Debt

Debt as defined by is:

something that is owed or that one is bound to pay to or perform for another

Essentially when you are taking on debt someone has agreed to give you something in return for something else to be paid at a later time. The lender agrees to take on a certain amount of risk and you agree to pay them a certain amount extra, interest, for them taking on that risk.  The debts you owe can range from the .25 you owe your cube mate to the $250k you owe your mortgage company, hopefully your cube mate isn’t charging interest.

Types of debt

Personal Loans

Personal loans are those loans you have made or have been made to you by family members or friends. These loans are typically loosley arranged and may or may not have defined interest terms or payback requirements. Seemingly this type of loan would be ideal but experience shows that loans to and from family and friends can put undo stress on relationships with dangerous side effects.

Student Loans

Hopefully you are, or will be, lucky enough to make it through school without taking out any loans, if not than you are going to fall into this boat. Student loans can be subsidized, where the government pays your interest while you are in school, or unsubsidized where it accrues until you start paying. Either way student loans aren’t necessarily a bad thing. You are financing your future, I don’t like paying it but I am glad I went to college.


The mack daddy of all debt.  A mortgage is essentially a loan for a piece of property that is secured by the property. What this means is that if you dont’ pay back your debt, they take back their house.  Typically mortgages have been seen as an investments which is “guaranteed” to increase in value. As we have all witnessed this couldn’t be further from the truth. Don’t buy a house for an investment unless it is really just an investment property.

Credit Cards

Credit card, or plastic money, are little portable debt tallying machines. A credit card is a method for getting a short term loan for something you are going to purchase. You are given a plastic card, an exorbitantly high interest rate, and a spending limit.  The credit card company hopes you do two things, 1.) max out the card and 2.) carry a balance. That way they continue to make money off of you. I like to have my card just because I have always had it, we use it for any large purchase but we never carry a balance on it we just collect the points.

Payday loans

These are the devil, no seriously they are the devil. I won’t even describe them here other than to say they make credit cards look like the saints of the debt world.

Good Debt vs. Bad Debt

Lets start with the fact that debt, no matter what kind, is still debt. You OWE soemone money and THEY have some type of leverage against you for it. In this sense all debt is bad debt, however, there is definitely debt that is OK and debt that is bad. The OK debts are things like your house which will eventually increase in value and your student loans which will eventually help you get a job. In some select cases it may even be OK debt if it is on a credit card, don’t tell Dave Ramsey I said that, it all depends on the WHY and the WHAT, not the WHERE.

Bad debt is debt associated with flipant spending for unnecessary items. Credit card debt is the biggest drain on the American household and yet so many people just can’t wait to swipe that AMEX or VISA for that new Coach bag, or the hottest new trend. These types of debts are typically referred to as consumer debts and should be avoided. If you can’t pay for it, don’t buy it just save your money and get it later.

Photo: (kevinkrejci)

This article is part of the Suburban Dollar Back to the Basics series. I plan to cover remedial personal finance topics which aren’t as sexy, or typically covered, in the personal finance blogosphere. My hope is for people to get a better understanding of basic personal finance without boring you to death, hopefully you will be able to share these posts with family and friends to get them into personal finance and have a good foundation of knowledge.

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Understanding Your Credit Score

August 26, 2009

Your credit score is essentially a number which should depict the creditworthiness of any given individual. Contrary to popular belief there is more than one credit score as each vendor will typically use their own calculation to arrive at your magic number. This mystical magical number may seem unimportant early in life but can have […]

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Be Frugal, Not Cheap

August 25, 2009

A key method for spending less than you earn is to cut your costs on the things you buy every day. Reducing expenses and paying less than retail for the items you normally buy is commonly referred to as being frugal. Frugality is often confused with being cheap and in many cases the two terms […]

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