What is a Certificate of Deposit?

More commonly known as a C.D., a Certificate of Deposit is a non-accessible account that you can open with a bank. The depositor purchases a “CD” for a predetermined amount of money (often in hundred or thousand dollar increments). The bank then has the right to loan out the depositors money without fear of depositor withdrawal, and in exchange, the bank pays a higher interest rate.

Larger principal (amount) CD’s will yield higher interest rates. Longer term before repayment will yield higher interest rates. Penalties will be incurred if the depositor decides to cash in their C.D. before term completion.

The C.D. is also insured by the FDIC (What is the FDIC?) which makes it virtually risk free. These are great tools for investors who want more interest that would be yielded from a Savings Account, but want to remain risk free.

JP Morgan Chase Online Banking

In an age where I can purchase my clothes and food online, talk with my friends online, and even meet a spouse online—doesn’t it make sense that I can manage the funds in my standard bank accounts online?

It absolutely does.  Fortunately, the banks have heard our cry.

Online banking allows you to do everything that you used to do with your teller physically at the bank virtually over the internet. It is very easy to set up (different depending on which bank you bank with, simply ask your teller or search “[Bank Name] Online Banking”.

Why do I have several balances?

You may notice that your accounts each have two balances available.

1. Available Balance
   The available balance is the actual amount you have available to spend. This includes any “holds” or un-posted expenses on your account.
2. Posted/Present Balance
   The Posted/Present Balance is the amount that has already cleared your account.

What can I do with Online Banking?

Well, Like I said: Almost anything you can do in a brick and mortar bank.

1. Recent Activity
   This will outline all of the activity on your account for you for months, if not years, prior.
2. Transfer Funds
   This will allow you to transfer funds between your personal accounts, even accounts held at other banks.
3. Pay Bills
   By setting up online bill pay, you can have your bills automatically withdrawn from your account so you never pay another late fee again.
4. View Paper Statements
   This allows you to see all of your past paper account statements online in PDF form.
5. Order Checks
   This will allow you to order checks online.
6. View Rewards
   Many accounts allow for a rewards system when you use your debit card.  You’ll earn points for each dollar spent, etc.
7. Go to Customer Service

What is an Overdraft?

Overdrafting is the action of spending more from a checking account than you had deposited in the account. This commonly happens to new account holders or even occasionally to the seasoned depositor who simply miscalculated their expenses for a month.

The problem with this mistake is that it can be rather costly to the account holder. Often times an overdraft that totals under a dollar can result in $25.00 – $30.00 charges, depending on the Financial Institution.

What is Overdraft Protection?

Many banks offer an outstanding service called overdraft protection. This requires the account holder to have both a Checking Account and some form of Savings Account. By speaking with a teller, the holder can then have the two accounts linked, so that in the event of an accidental overdraft the necessary funds would be funneled from the Savings Account to the Checking Account in order to cover the gap.

This service is ordinarily free and takes only minutes to set up. It can save you hundreds of dollars after only a few miscalculations in spending.

How can I avoid Overdrafting?

Well, aside from simply relying on Overdraft Protection, there are several measures you’ll want to employ in order to avoid making this mistake and eating away at your savings.

1. Employ Online Banking (What is Online Banking?)
   Be sure  to check your balances regularly.  If you use a smart phone, many banks also have “apps” for checking your balance on the go.
2. While out and about, use your bank’s balance check phone number.
3. Be sure to balance your checkbook.

A savings account is a great place to store your money and earn a little interest, although they are a bit less accessible than a Checking Account (What is a Checking Account?)

As opposed to a checking account, when you store your money at a bank using a Savings Account, your money is not directly accessible (though it can be with a simple visit to the bank). By storing your money with the bank, you can be sure that your money is safe and secure.

The money is even further secured against bank failure by the FDIC (What is the FDIC?) as well.

Will I Earn Interest with a Savings Account?

You absolutely should. If you’re opening a Savings Account that pays zero interest, you should look into another bank. However, if you’re looking for any sizable interest a savings account is likely not the answer for you. The interest that you will receive will be very, very small. Often under 1% annually. But, minuscule interest is better than none at all.

Savings Account as Overdraft Protection

Many banks offer a great service called overdraft protection. Learn what Overdraft Protection is.

A checking account is an account held at a bank where they store and protect your money for you. This money is immediately available to you at all times, and the bank will usually provide extra services to you like a debit card, checks, and online banking.

By storing your money with the bank, you can be sure that your money is safe and secure.

The money is even further secured against bank failure by the FDIC (What is the FDIC?) as well.

Will I earn Interest?

Probably not, although it isn’t completely unheard of. Most checking accounts pay you via convenience and safety services as opposed to yielding actual interest. If you want to earn interest, you should consider looking into a Savings Account (What is a Savings Account?) or Investing.

Debit Card’s Convenience Factors

Most checking accounts are accompanied by a debit card.  This debit card makes it much easier to spend and access the funds in your account than to carry cash:

1. Mobility
   By carrying a debit card, you could have access to millions of dollars (if you were so lucky to have that amount in your checking account).  In order to have control over that same amount of money in cash, though, it would take carrying backpacks full of money.  This could be very heavy and inconvenient- not to mention it draws unwanted attention, which brings us to%hellip;
2. Safety
   If you carry cash, it is very easy for someone to steal from you.  There is little or no recourse and unless the police manage to catch the thief, you will likely never see your money again.
   With a debit card, however, as soon as it is stolen you can call your bank and cancel the card.  No thief will have access to it and your funds are much safer.

“Backed by the full faith and credit of the United States Government.”

But what does that mean and what does this “FDIC” stand for?

What is the F.D.I.C.?

The F.D.I.C. is the Federal Deposit Insurance Corporation. The FDIC was started after the Great Depression in order to “promote public confidence in the United States Financial System.” You see, when the depression hit, dozens of banks went out of business and people’s entire life savings simply disappeared.

It is the FDIC’s job to guarantee the deposits of all American Citizens in any FDIC member bank up to a predetermined limit. Due to the recession every individual account is insured up to $250,000.00 until December 31, 2013, after which it will return to its previous $100,000.00 level.

Why aren’t all banks FDIC Members?

Why wouldn’t a bank want to be an FDIC member? Well, most do. Almost every bank that you come in contact with will be FDIC insured. The problem many find with it though is that the bank gives up much control over risk taking. The FDIC breaks each bank into a category of “riskiness” based on how much capital (cash) they maintain (instead of lending out):

• Well capitalized: 10% or higher
• Adequately capitalized: 8% or higher
• Undercapitalized: less than 8%
• Significantly undercapitalized: less than 6%
• Critically undercapitalized: less than 2%

If a bank ever falls into the final category, they will be issued a warning by the FDIC. If the warning goes unheeded the FDIC can take over management from the bank.

What happens when a bank goes under?

The FDIC has two methods for dealing with failed banks and making right with the insured customers.

1. The Purchase and Assumption Model
   This is a fancy way of saying that they sell the bank’s assets (including your deposits) to another bank, who then takes over responsibility.  This is the preferred method.  The sale and acquisition is practically unnoticeable for the average customer and the customer can continue banking with their new bank just as they did before.
2. The Payout Method
   This is a less fancy way of saying that the FDIC sells all of the bank’s holdings and uses the proceeds (plus Government Money if necessary) to pay back the bank’s depositors.

What types of Accounts do the FDIC insure?

To be sure which accounts of yours are insured, check the FDIC website.
In general though, the FDIC covers “Deposit Accounts” which include:

• Checking Accounts (What is a checking account?)
• Savings Accounts (What is a Savings Account?)
• Time Deposit Accounts (CD’s) (What is a CD?)
• Foreign Currency Accounts
• Outstanding Cashiers checks, etc.

You hear about the Dow Jones Industrial Average (DJIA) on nearly every major news station. It seems to be every economist’s favorite way to watch the market. What is it? How is it calculated? and Why is it no longer the best?

What is the Dow Jones?

It is one of the many Stock Market Indices used in the United States to guage total market performance.

The index was originally created by Charles Dow, cofounder of Dow Jones & Company- the Co. that produces the Wall Street Journal.

It was originally made to track the industrial sector of the market, hence the djIa.

The DJIA is composed of 30 of the largest companies in the United States. The only company to remain from the original 12 that made up the DJIA in 1896 is General Electric.

So how is it Calculated?

Its actually pretty simple.

The formula is very simple. You take the sum of all of the prices of the 30 stocks in the index and divide them by a divisor.

In 1896 the average was a pure average. In other words, it was the sum of the prices divided by 12, the number of companies in the DJIA.

The divisor is changing though. It changes, as companies in the DJIA go through situations like stock splits, in order to keep the value constant.

The divisor is currently 0.12283402. Because it is below 1, it yields a DJIA value that is larger than the sum of the prices in the index.

This doesn’t sound so bad?

It wasn’t in 1896. It was pretty cutting edge then.

You see- In 1896- there were no computers or calculators. So, the trading day would close at 4:00PM so that all of the bankers could sort out the day afterward, and the most that any index could really handle- find the prices for, add them up and divide- was about 30 different companies.

In modern day, with computers running the show for us, there is no need to limit our stock analysis at 30 stocks. With Indices like the Standard & Poors 500- analyzing 500 different companies – and the Wilshire 5000 – looking at 5000 different companies, the DJIA is simply not the most accurate way to follow the market any more.

So my advice?

Keep using it. Everyone else is. But dont use ONLY the DJIA.
Look at as many different indices as you can when guaging market performance.

Ladies and Gentlemen: Welcome Neville Medhora-

Tell us a little about yourself and what it is that you do.

Currently I own and manage the largest online rave company. I started HouseOfRave.com in high school, have always done it part time and have just recently gone full time with it.

What is it about money that most intrigues you?

I find it fascinating that money is completely fake. It’s not real. Every major currency is a fiat currency which means it’s essential fake. Until I fully understood that I never made much of it.

There is a simple test you can apply to anyone to see how much money they have:
What is their contribution to their fellow man? How much value have they provided?

Some easy examples of this:
-Guy flipping hamburgers at restaurant provides only a marginally useful service that anyone can do.
-Steve Jobs is a one in a billion guy who took his formerly failing company and turned it into one of the greatest success stories in just a few short years. He revolutionized personal computers and now the phone. He enriched and made millions of lives easier.

Guess which one of those provides the most value, and therefore has the biggest wallet?

What would you say the number one cause of your success is?

‘Success’ is kind of ambiguous, but without further complicating the question I’d say that focusing my efforts on ONE THING really helped. Back in college I was doing 5-10 businesses at once. Nothing ever took off until I took the plunge into just ONE.

What’s the best part about being self employed?

Being able to do my work at noon or save it till 4am. I also absolutely detest rush hour traffic and would rue the day I have to drive in it. I love my work, but I don’t always want to work from 9 to 5. Maybe I want to work a few hours now, go run errands, then work 10 straight hours way into the night. That freedom is what I like best. But with freedom comes having to discipline yourself…that took me a long time.

What are your best methods for finding/attracting clients?

Have something that significantly enriches their life or business in some way.

Name your 5 favorite websites:

www.NevBlog.com – It’s fun to look back at where I was each year. I can’t write about most of the cool stuff on the blog, but it gives me a general snapshot of what I was doing at this time several years ago.
www.ted.com – Single best source of fascinating videos online. I usually watch a ted video when I eat lunch.
www.Luxist.com – I like the luxury real estate section.
www.digg.com – Digg is pretty fun.
www.stumbleupon.com – Maybe once a week I’ll sit and use StumbleUpon for several hours into the wee hours of the morning. I can’t tell you how many fascinating things I’ve stumbled upon and good ideas I’ve got from using this seemingly time-wasting website.

How did you get your start? Did you study something in particular or were you self taught?

I was completely self taught. My immediate family doesn’t have any business experience, so I had to branch out on my own to gain that experience and motivation.

I used to be a big computer nerd back in middle school and high school, and would learn all sorts of different computer programs, how to make webpages etc. Eventually I got interested in seeing if I could make money doing those things.

I also started asking family friends who owned businesses, “Ummm…sir….what do you do?” They were glad to invite me out to their companies and show me around. I was hooked.

Here’s a little elaboration on how I started.

What are the tools that you couldn’t live without?

Photoshop, my tablet PC, fast internet access and books. Especially books.

What do you feel are the most important skills to have in order to manage money?

Common sense. Spend less than you earn. During the good times, make sure you save for the bad times. It’s seriously that simple. People who say otherwise are undisciplined and/or lazy.

How are you coping and dealing with the current downturn in the economy?

I’m trying to boost HouseOfRave.com sales to a $1,000,000/year, and a downturn doesn’t exactly help. I feel I’ll have to work twice as hard to just maintain the level I’m at….and get 10 times as creative to hit my goal. Using more creativity I believe is the way to prosper during bad times.

Wherever there is a big problem, there is an even bigger opportunity.

Which one person would you say has had the biggest influence on you?

Earl Nightingale.

What is your number one tip for a college student freshly started in money management?

Start saving. Be cheap (or frugal, whatever you want to call it). Bargain for everything. Every penny counts. If you don’t graduate with at least 6 months of living expenses saved and ready to use, you’re at a significant disadvantage.

I wrote about this Here.

Is there anything else that you would like to share with the readers at UseTheDollar.com?

Yes. There’s this thing called the library where they have vast collections of the life works of thousands of fascinating, successful and brilliant people. They keep all these secrets in one place, and let anyone use them for absolutely free.

They’re called books, and they often answer every question you could ever have, and impart on you vast amounts of knowledge 99% of the population will never bother to attain. Reading one (non-fiction) book every two weeks can put you so unbelievably far ahead of the curve it blows my mind that more people don’t do it.

Make sure to check out Neville’s personal financial blog (the very first result when conducting a google search for “Finance Blog’) at www.NevBlog.com!

Thanks again Neville!

Man consider the stock market to be a source of passive income.

I do not.

It can be manipulated into passive income by investing in mutual funds or allowing your stock broker to take care of your investments.
Because you would be putting forth no or little effort, it would be considered passive income.

But if you choose to invest on your own- you had better be making that active income.

In the entries to come we will go over different tools and necessary methods to use with investing, but today we will be covering the time consuming aspect.  Your “homework“, as Jim Cramer puts it, should take up at least one hour per stock that you own per week.

So if you own shares of Google, TBSI, Boeing, MNKD, and WaMu(haha) then you should be doing five hours of homework per week.

We will go deeper into what is expected of your homework in the weeks to come, but it should include things like researching management, listening and watching press conferences, keeping track of the multiple, etc.

By managing these sorts of issues you make the giant leap from being a hobbyist to creating what I consider a second job.

But by doing so you are becoming an educated investor, prepared for both the bull and the bear.  People are making money in the good and the bad markets- and the only thing that distinguished them from you is that they educate themselves.
Why not you?

One can make a sizeable profit by taking and selling quality class notes in a college setting and then mass marketing them to all of the students in their class.

Idea Tested during Summer 2008 Semester

——-

Step One(June 3, 2008):

First day of Class; Develop a sellable product.

I went to class with a notebook and pen (primitive I know) and took my notes by hand. Then when I came home I transferred them into a word document. I found this was helpful to me because it forced me to go through my notes again, but it also seemed to yield much more professional looking and coherent notes than if I were to type them in class.

——–

Step Two(July 3, 2008)

Market my Product!

My school uses a system called Web CT Vista. Most of the students hate it, but I find it makes it relatively easy to communicate with my classmates.

I mailed out a quick email to everyone in my class saying,

“Hey there Everybody!

I wanted to send out an offer to everyone in the class. I am a very proficient note taker and I transfer my notes into MS Word each day after class. Here is a sample of my notes: http://www.theisticthinking.com/samplenotes.htmlI am offering copies of my notes up for sale at the rate of $15.00 for the entire semester. By purchasing them now, you will receive them by the day after each class via email or I can bring you a hard copy of each class’ notes by the next class meeting.If you would prefer to wait until the final exam, I will be selling the complete package together for $20.00

A few important details: I will be absent on June 24 and 26, so my notes will be taken out of the book for those days and not the notes from class. They should be just as good though.I will accept Cash, check or paypal as methods of payment. Just message me back here on Web CT or at Michael@theisticthinking.com if you’re interested!Again, My samples are here http://www.theisticthinking.com/samplenotes.html

I hope this finds you all well! Grace and Peace!

–Michael Caldwell “

Disclaimer: It may be a good idea to speak to your professor before sending out a message like this; or, like me, you may prefer to ask forgiveness than to ask permission

————–

Step Three(June 3, 2008)

I’ve already had three replies to my original email. Each of them are planning to meet me at class on Thursday and pay me for the notes at which point I will email them to them and continue to email the notes after class each day.

Step Four(June 5, 2008)

Between the Third and today I have had another email and will be meeting all four people before class to get their money.

The money has been received. Now I will be able to keep marketing and the best part is; these notes don’t expire after the course- I can continue to sell them to students in this Econ 2100 class until I’m graduated (or even after really, I just dont see that happening.)

Total Run Down:

Marginal Revenue: $15.00 per set sold
Total Revenue: $60.00
Total Expenses: $0.00 and 0 time; I was already registered for the class!

Total Profit: $60.00

Keep in mind that this was only for one class. I tried the experiment on a small scale, but come the fall I will be doing this in all five classes and marketing much more heavily. I don’t see why I shouldn’t be able to yield atleast 5-10 customers per class times five classes.