Money Green Life

I was watching TV one day with a few friends and they asked me what an APR was as we finished watching a Toyota commercial. I explained to them what it meant and then it dawned on me that not everyone understands the meaning of some of the key financial terms we toss around everyday. So I took it as an opportunity to make it into a blog post to define some of these key terms. As I was even writing this post, I had to look up a few terms myself just to make sure I had it right.

1. APR

Annual Percentage Rate refers to an interest rate that’s tacked on to the borrowed money. For instance, if you borrow $10,000 and the APR is 5%, then you would end up paying $500 in interests at the end of one year. However, if you borrow $10,000 and the interest due is 5% at the end of one month, then the APR jumps to 79% (1.05^12).  On the flip side, if you borrow $10,000 with an APR of 5% and pay back in one month, you would only end up paying 0.42%. Read the rest of this entry »

I was fortunate enough to lock in my mortgage rate at a low 4.375%. There’s still some chance of going lower, but at this point, the chance of going up is greater than it is to go down further. But before you lock it in now, you must still be careful not to get ripped off. Yahoo Finance released an article today about some of the warnings. It’s a short article, but allow me to briefly summarize it for you.

Reliable lenders will help you as much as they can to give you the best rate as possible. But there are still some shady lenders out there and will oftentimes confuse the consumers with rate quotes, which is much different from rate lock-ins. Typical rate lock-ins take no more than a day or two, so if your lender is requesting more time, it should give you a red alert signal and stay away from this lender.

I didn’t have to worry about foul play during my refinancing process because it was through a friend who is a mortgage lender. I knew I could trust him. So, when locking in your rate, always have a documentation indicating such, instead of relying on the lender’s verbal statement.

To read the full yahoo article, you can do so here.

2010 World Series of Poker is well under way as the grueling day after day progresses. Players are scrambling to win chips from their opponents in hopes to be the last player standing at the end of the massive 13-day poker tournament. This year’s main event tournament was amassed by the second largest number of players in live poker tournament history with 7,319 players and $8.9 million going to the winner of the tournament. It’s very exciting for poker players in the world and fortunately for non poker players like us, a few money lessons can be derived from these poker tournaments. I came up with 4 lessons that can be learned from this year’s WSOP tournaments.

1. Bankroll Management

A good poker player will have a smart bankroll management plan. A bankroll is the amount of money a poker player will always have available to play poker with. With this money, he will use to purchase buy-in tournament fees into various poker tournaments. He will also use this money to play cash games.  With a smart bankroll management plan in place, the poker player will never ever go broke, unless he plays out of his bankroll plan. As long as he is within the means of his bankroll, he should be able to play poker forever without going broke. For instance, a good bankroll to have is about 100-250 times the amount of the highest buy-in fee for a poker tournament he is willing to play. The World Series of Poker Main Event tournament buy-in was $10,000. In order for any given poker player to be able to play in this tournament by directly buying into the tournament, he should have somewhere between $1,000,000 – $2,500,000 in his poker bankroll.  In the same way, he can play a cash game with maximum buy-in of $10,000 at the table to comfortably play without worrying about going broke. Poker is a game of skill and luck and professional players find ways to minimize luck and maximize skill. By playing within the bankroll, they minimize the risk and luck factor involved in the game. With this bankroll management practice, a poker player will never go broke. Refer to Boku87 Challenge for his bankroll strategy. Boku87 is an online professional poker player at Pokerstars who challenged himself to earn $100,000 from his $5 bankroll.

In the same way, we need to have a proper “bankroll management” with our money. We can do this by budgeting our everyday spending items carefully, and never spending outside of our budget limits. Once we spend outside of our spending budget, we’re allowing luck to factor in the system, which allows our budget to become less stable. Use a budgeting tool to help you limit on what you spend. If you budgeted yourself $500/mo for credit card purchases, do everything you can do to ensure you don’t exceed that amount in credit card purchases. You can download a free budgeting spreadsheet I personally use myself.

2. Patience Patience Patience

A poker player can not be judged on how good of a player he is after just one cash game session or one poker tournament. It only takes couple hours to learn the game of poker, but a lifetime to master it. A poker tournament is very similar. A single tournament can last well over 10 hours. The WSOP main event this year is played over 13 days, with each day lasting for over 10 hours. After only a couple of days, fatigue can definitely affect the way a poker player plays his game. Imagine just sitting there in your seat for hours and hours playing a card game. It can get quite boring and tedious and monotonous and will become a challenge to maintain a sharp mind to make optimal decisions hand after hand.

The same principle applies with your savings. Money doesn’t grow like wild weeds in your yard. But your savings will grow when they are properly taken care of.  It takes time though. If you put $1,000 in an online savings account such as Discover Bank or Ally which has an annual return of about 1.3% or so, you can expect to double your initial investment in about 55 years. If you are saving for your retirement, you are looking to save for about 30+ years. If you’re saving for college tuition for your kids, you will end up saving for about 18-20 years. The bottom line is that saving money takes time and patience. Keep working at it and stick to your original plan. The winner of this year’s WSOP will reap the rewards after 13 days of grueling poker. You, however, will reap your rewards in your future by being patient.

3. Avoid Emotions

Have you seen any WSOP coverage on ESPN lately? Have you observed the faces of poker players? They’re all emotionless, especially during a hand. Poker players must put all emotions aside when playing cash games or tournaments. If they allow their emotions to persuade their decisions, they will make decisions that they would not normally make, ultimately allowing them to bust out of the tournament or losing all their money in their cash game session. Seeing hundreds or even thousands of dollars move from one player to another player for many hours can have dramatic emotional effect. Good poker players are able to put their emotions aside and make sound decisions based on their poker experience, odds and probability, and their skills.

One thing I always used to do back when I was really into trading stocks was buying and selling according to my emotions. It cost me a lot of money trading this way. If I saw a stock falling, I would sell in panic. If I saw a stock rising, I would buy more in excitement. My emotions got the better of me. When you’re dealing with your money, whether in trading stocks or savings or personal budgets, you have to leave your emotions aside. Make sound decisions based on what’s reasonable. Don’t let your emotions influence your choices, especially when you’re shopping.

4. Short Term Goals

One thing a good poker player does is set short term goals and change gears in their gaming strategy as they reach their short term goals. If the poker player plays with the same strategy throughout the entire tournament, other players will catch on, allowing them to become vulnerable. If they don’t change gears in their strategy, they will lose all their chips to their opponents. Setting short term goals throughout the tournament will allow the poker player to change their playing strategy accordingly, ultimately confusing their opponents.

When you’re saving up for a big purchase, you need to set short term goals as well. If you need $10,000 in two years to upgrade your home or build a deck or need money for a down payment on a house, it can get a little overwhelming when you look at the final number of $10,000. But if you set goals in between, then it might become less intimidating. Set goals of saving $1,250 every 4 months and then re-evaluate. If you need to change your gears after the first 4 months, then do so to reach that ultimate goal of $10,000.

It’s definitely some exciting time of the year for poker players. It’s every poker player’s dream to win the Main Event of the World Series of Poker. What would you do with $8.9 million dollars?

In light of planning for the wedding, I just opened Discover Bank online savings account. There were so many to choose from, such as Everbank and Ally, and also ING Direct. I chose Discover Bank due to their high yield rate and low initial deposit to get things started. Since this is my short term solution to help me save money for my wedding and honeymoon, I wanted to open Everbank, which offers 1.51% average for the first year. But I could not afford the $1,500 initial deposit. I’m still kicking myself in the head because I believe I budgeted well for the engagement ring, but poorly for the wedding.

I plan to dump all of the money I save every month in this new account. This savings account along with tax returns and potential additional tax benefits for filing jointly will help me reach my financial goal to help pay for the wedding and honeymoon.

Update (July 9, 2010)

When you sign up for Discover Bank Online Savings Account, you’ll start accruing interest immediately at 1.35% apr. To read my full review on other high-yield online savings account, read my previous post entitled, Highest Rate High-Yield Savings Account. You’ll be required to fund your account of at least $500. I funded my account by simply providing my bank information. I plan on starting out with $500 and depositing whatever amount I save every month into this account. If I save $1 this month, that’s the amount I will transfer. Also, one thing I wasn’t very clear on was online access to my account. Apparently, when you sign up for the savings account, you don’t create a user name and password. You have to register your account at Discover Bank Online Access Account. They don’t give you your full account number until your funds are fully transferred, in which they will send you a welcoming kit with the account number included. So, today, I received an email saying that my funds have been fully transferred and that the welcoming kit has been sent. It’s a little annoying, but sometimes, to save money, it becomes annoying.

I’m in a unique situation where getting married will actually benefit me in terms of tax returns. Typically, when two people get married, they will have to pay a small marriage tax fee when they file jointly, mainly because of dual income status. But for me, my fiancee is a student and currently has zero income. When we get married early next year, I’ll be the sole source of income so there will be some tax benefit for both of us when we file jointly. Whether we get married in January or June or December, it does not matter because the benefit will kick in for the entire calendar year for the year we are married. Since we are deciding to get married in 2011, we’ll only see tax benefits for 2011 and so on, provided that she does not work full time. If, however, we decide to push the wedding forward and get married in December 2010, we’ll take advantage of the tax benefit for the entire 2010. So, with that said, how much is the tax benefit and is it worth the effort of getting married early? Read the rest of this entry »