Which Credit Card is Right for You

If you're in the market for a new credit card, there is a bewildering array of cards to choose from. There are even more incentive offers, so how can you decide on the card that is best for you? Here are some of the factors to consider.

What Kind Of Payer Are You?

The most crucial question is whether you are a person who clears the credit card every month or whether you always leave a balance on the credit card.

If you pay up at the end of every month, then you can go for a credit card that offers an incentive. If not, then you need to look at the annual percentage rate (APR) on the card. If you know what your typical credit card balance is, look at the illustrations given by card issuers to give a guide to how much you might have to repay over time.

Taking An Interest

Even with interest rates, you need to be careful. Although your new credit card may come with a 0% balance transfer rate, this is not the only rate to think about. Look at the rate on purchases or other transactions to see what you might be paying. And remember that any payments you make are likely to pay off the transferred balance first, while any new spending accrues interest.

Hand in hand with the interest rate goes the interest-free period. This is the delay between spending money on the credit card and being charged interest. This can vary considerably depending on the card you choose. The interest free period can be as much as 56 days. And it's how you use it that counts. If you put major spending on the credit card after the statement date, you have a month till the next statement, and then a few weeks to make the payment. This can be a good way of managing cash flow.

Look At The Fees 

There are three types of fees that count with credit cards. The first is the cash withdrawal fee. Many credit card issuers charge you for withdrawing cash at an ATM. These fees can be around 2% of the transaction. The percentage is even higher when withdrawing cash abroad. If you must use the credit card, then you're better off making one large withdrawal so you don't pay the minimum fee each time. 

Getting Some Cash Back 

Some credit cards offer annual cashback deals which are great for people who clear their balance every month, but not so good for others. If you don't clear your balance, the interest charged will wipe out any cashback gains. There are also reward points schemes that allow cardholders to earn money from their spending – and spend it again with a variety of high street and online retailers.

Paying attention to these items will help you to choose a credit card that will match your financial situation.

Life Insurance: How much is enough?

The Two Approaches to Setting Life Insurance Policy Amounts 
You can use one of two approaches to estimate how much life insurance you should buy: the needs approach or the replacement-income approach.

Using the needs approach, you calculate the amount of life insurance necessary to cover your family’s financial needs if you die.

Using the replacement-income approach, you calculate the amount of life insurance you need to equal the income your family will lose. Let’s look briefly at each approach.

You need how much? 

Using the needs approach, you add up the amounts that represent all the needs your family will have after your death, including funeral and burial costs, uninsured medical expenses, and estate taxes.

However, your family depends on you to pay for other needs, such as your child’s college tuition, business or personal debts, and food and housing expenses over time.

The needs approach is somewhat limiting.

The task of identifying and tallying family needs is difficult, and separating the true needs of your family from what you want for them is often impossible.

Replacing Income 

Using the replacement-income approach for estimating life insurance requirements, you calculate the life insurance proceeds that would replace your earnings over a specified number of years after your death.

Life insurance companies sometimes approximate your replacement income at four or five times your annual income.

A more precise estimation considers the actual amount your family members need annually, the number of years for which they will need this amount, and the interest rate your family will earn on the life insurance proceeds, as well as inflation over the years during which your family draws on the life insurance proceeds.

Note: Do remember as you quantify the income you want to replace that Social Security provides generous survivors benefits if you’ve qualified.

Calculating Replacement-Income Amounts with Excel

If you’ve got access to a computer running Microsoft Excel, the popular spreadsheet program, you can use your computer to calculate the amount of insurance you need to replace a specified number of years of income.

Suppose, for example, that you want to buy enough life insurance to replace the income from a $50,000-a-year job for 15 years.

If you figure your family will earn 5% on the life insurance proceeds should the worst case scenario occur, you enter the following formula into a cell in an Excel workbook to calculate the replacement income life insurance amount:

=-PV(5%,15,50000)

Excel returns the formula result 518,982.90 indicating that you would need roughly $520,000 of life insurance, invested at 5%, to payout $50,000 a year for 15 years.

Two Calculation Tips 

If you want to factor in inflation because you’re trying to replace income over a long period of time, you should use a real rate of return rather a regular, or nominal, rate of return.

To calculate a real rate of return, subtract the inflation rate from the interest rate in the formula.

For example, if you expect 2% inflation, you could replace the formula shown earlier with this formula:

=-PV(5%-2%,15,50000)

Here’s a final calculation tip:

You probably want to round up your number. For example, if the formula provided earlier returns the value 518982.90, you might want to round up this value to $600,000. Or $750,000.

Editor's Note: Financial Services Online provides a free online calculator that uses a combination of replacing income and needs approach in helping to determine the amount of life insurance cover you may need.

Create a Personal Budget in 7 Easy Steps

If your financial situation is out of control it may be time to create a personal budget. This could be the decision that gets your finances back on track because it takes back control of what your money is doing.

You want your money to work for you not your creditors, which is exactly what it is doing if you are living payday to payday. Instead of paying interest to them why not make it yourself?

A personal budget will do many things for you.

The most important thing it does is let you make informed decisions about how you spend your money.

It will show you exactly what you income and expenses are and lets you make adjustments to ensure a sound financial future.

Other then taking the time to get started, creating a budget is relatively easy.

You will need a notebook or legal pad and a pencil. Draw a line down the middle of your paper, label one side income and the other expenses, and you are ready to go.

1. Gather up your last three months worth of pay stubs and any other records that show income. Total them up and divide by three to get your average monthly income. That number gets written down at the top of the income column.

2. Now for the fun part. Gather up all your bills, credit card statements, and checkbook register and start itemizing a months worth of expenses in the expense column. For those bills that fluctuate each month you can use the three month method as used in step one to get a solid average. Add all those expenses up and write the total down at the bottom.

3. This is the step most people fear. Compare your income to your expenses and see which one is more. If you expenses are higher then your income then you have a problem that needs to be fixed. Chances are you are making up this shortfall with credit of some sort. You can't build a sound financial plan if you are in debt, it's that simple.

4. Now that you have everything written down it's time to look it over carefully. Target unnecessary expenses and start cutting them. A budget gives you the power to free up money that can be used for more important tasks.

5. You can also use your newly created budget to start prioritizing your debts and which need to be paid off first. This gives you a game plan to get out of debt while actually being able to see positive results, which is a major part of good money management.

6. As you get better at budgeting you can start to refine and track your long term financial plans. You can manage savings accounts, investments, emergency funds, and retirement accounts using your personal budget.

7. Patience is required when first starting out because it won't work perfectly those first few times. Most people need 3 or so months of budgeting practice before they start to really get the hang of it.

Your financial future is in your hands. Nobody can build it for you.

If you create a personal budget you will take the first step to attaining your financial goals.

Teaching Kids About Budgeting

If you have kids, you've probably already figured out that teaching them how to handle money is one of the most important skills you'll ever teach them.

As a parent, there are two critical areas for you to take action to help your kids the most when it comes to money and budgeting.

1. Manage your money in a responsible way. 
Create a simple budget that works for you. Practice good budgeting habits - know how much you have to spend before you spend it.

By spending within your self-made budgeting guidelines, you will demonstrate a confidence and security about money that your kids will notice and hopefully emulate later in life.

Make a habit of saving. If you don't follow a budget, don't save money and you frequently overspend, you will have a great deal of stress about money which your kids will easily pick up on.

Which lesson do you want to teach your kids about money? Money is stressful? Or, money is to be respected and commanded in a responsible manner, bringing a sense of confidence and calm?

2. Directly teach them about budgeting and saving money early (before they become teenagers.)

Some experts disagree about the effectiveness of allowances and money for chores, etc. - but don't get distracted by this.

How your kids 'get' money is quite a different thing from what they do with it once they have it.

Help your kids to know the pros and cons of the different things they can do with their money.

Kids aren't generally known for having a long attention span, especially when the topic is boring, so keep your message simple.

Encourage them to save a portion of any money they get; a great idea for reinforcing this is to match each dollar they save.

Also, gradually help them to understand the different places money flows to in the adult world.

For example, explain the sales tax on the receipt for the shirt they just bought - that it is used to pay for roads, schools, etc.

Or, if you want something a little more fun for them, playing a board-game like Pay Day or the computer game The Sims can help a lot by giving them a frame of reference for understanding some of the basics of where money goes.

However, actively helping your kids to build a habit of saving money whenever they receive it, in the real world, is probably one of the best things you can do to help them build good money skills.

Explaining the pitfalls of using credit is valuable too (as well as minimizing your own use of it!), but emphasizing savings is probably more effective at a young age since it's something they can do now.

Teach them that by having a lifelong habit of saving money, they won't need to borrow as much, allowing compound interest to work for them and not against them.

When your kids get their first part-time job, continue to extend your reinforcement for saving, but now add in a proper budget.

After showing them the basics of listing their expected income along with their desired expenses and savings goals, reward them for creating their first budget.

Be creative in offering various incentives for them to stick to their budget.

By building on the savings habit you taught them earlier on, and introducing them to the concept and value of budgeting, you will have done a great deal to help your children grow into one day being responsible adults.