In Honor of All Fools

In honor of April Fools' Day, Bankrate has a lead article with the 12 most embarrassing money moves---Bo, are you paying attention?

About Bo

This is Bo. He's 17. He's on My Space, if you're interested. He looks older; mostly because he's 6'5" and usually has stubble. He never has any money. He's still in high school and is starting to think about maybe kind-of-sometime-soon finding a job. Either that or taking the Hound to NYC, "jumping a freighter" to Europe, hiking through Spain and catching the ferry to Prague. (Geography is not his best subject.)

He was going to finance this venture by selling "his" car (the '95 Camry with 145,000 miles we bought him last summer). DD pointed out that it wasn't "his" car until he actually and truly graduated from high school.

Tomorrow we're going to work on a resume. Bo promised to study the food handler's manual and take the online test available in our county. He's a little more interested now that his friend Andrew has a job at the local coffee shop.

Basics

Taxes

Pay your taxes and file your return every year. Period. The IRS makes people disappear.

Bo made $1,200 last year at his summer job. We filed his taxes to get the $45 in total refunds and get his first return on the books. If you make under a certain amount, ~29-50K, the IRS has contract sites that allow free federal e-filing--use it.! e-Filing in our state (Oregon) was only 9.99, if you qualify. Here are the IRS introductory points for free e-File:

"A few points are worth noting. For instance:

• Free File is a free service offered by companies for taxpayers with an Adjusted Gross Income (AGI) of $50,000 or less.
• Carefully review the free offer descriptions before starting your return. Individual company offers may be limited to specific states and income levels. Additional fees may apply for state tax return preparation services.
• Each company has a description of their eligibility criteria for preparing and e-filing your federal tax return for free.
• When choosing a company, be sure to link to the company's web site through IRS.gov. By going directly to a company's web site, you may not get the free service.
• You are under no obligation to buy any products or services.
• Telephone filing (Telefile) is no longer available. Many taxpayers who used this telephone service in the past may qualify to use Free File. "

from Internal Revenue Service, US Department of Treasury

Cash Flow

Cash flow means money that's coming to you and money that's leaving you. To have a "positive cash flow" you need to have more money coming in than you're paying out. That's the green (or being in the black). Being in the red is having more money going out than is coming in---and that's when we're all tempted to use our credit cards.

Credit

Lots of companies want to lend you money. How about another credit card? Credit is a loan of money that you must pay back in the future. And you will pay the original amount (the principal) AND interest on the principal. Interest is expressed as a percentage. This is a percentage of the principal amount.

Simplified example: You charge $100 on your credit card. Your credit card charges you 12% interest per year. In one year you will need to pay the credit card company $112.00 for the loan of the $100.

Here's the big rub: You need to use credit to establish a credit history. This history is stored in documents called "credit reports." The credit reporting agencies have very very long memories so be very careful using and paying credit.

Net Worth

Net worth means: if you sold all your stuff and paid off all your debts, would you have any money left or still owe money? Always own more than you owe.

Indie Mission

I had a financial "awakening" two years ago.

Until I woke up, I'd coasted along, making enough, not saving enough, spending plenty. I was functionally illiterate when it came to managing personal finances.

I didn't pay much attention to bank fees, interests rates (paltry!) or contributions to my 401K---I had cash stashed in a money market account making 1.45%---and no IRA.

What happened to get my attention?

My employer changed 401K providers and it forced me to look at my allocations and contributions. (I was contributing close to the minimum to get the match.) That started a pebble rolling down the hill that turned into an avalanche.

I had an instinct for making good basic money-management decisions; I didn't have any credit card debt, for example. I needed to learn how to make better decisions. I needed a strategy. I started to read personal finance and investing books, newsletters and blogs. I scoured the library and the web for information and resources to become literate in money matters. I need to learn everything I could about managing my resources and fast. I'm not a kid starting out---I'm in the middle of my career.

Along the way, I learned a lot from the insights shared on many web sites and personal finance and investing blogs. I keep reading and learning. Now it's time to share some of those insights, tips, and resources: my 17 year-old son is finishing high school and will take up his open mission to become independent.