How Much Is Your Money Worth?

Let me start off by being very frank.  I feel strongly everyone should have a savings account in a secure, accessible, interest bearing account.  The purposes of this account should be to fund any short term goals you may have and also help pay for emergencies or unexpected job loss.  You won’t earn much interest(typically around .01%) but you do get the benefit of an FDIC insured account.  This prevents you from being leveraged to credit cards when unfortunate and unplanned situations arise.

But maybe you are disappointed in the feeble interest rates that most big banks are currently paying.  Or you feel you should being getting a little more for lending your money to the bank.  The goal of this post is to give you information about some alternatives(or supplements) to the traditional savings account.

Certificates of Deposit(CD)

CD’s offer the security of a savings account(they are FDIC insured) but with a little higher interest rate.  What’s the catch?  You have to be willing to give up access* to your money for the term of the CD.  Think of it like you are loaning your money to the bank for a specific, pre-determined amount of time and in exchange, they pay you interest.

Terms** for CD’s can vary anywhere from 1 month to 10 years.  Take a look at the example below and notice the connection between the term of the CD and interest rates(assume $1,000):

A 12-month Certificate of Deposit at Chase Bank currently pays .02% interest.  
A 4-year Certificate of Deposit at Chase Bank currently pays .25% interest.

*You are able to access your money prior to the end of the CD, but you will face fees and loss of any interest earned.

**Check out this website for a list of current CD rates or visit your local bank’s website.  

Treasury Securities

Most people would not be thrilled about giving their money to the federal government. However, Treasury Securities are considered highly stable investments (often described as “zero risk”) because they are based on the stability of the government of the United States, simply because the likelihood of government default or overthrow is basically nonexistent.

Here are three main types of Treasury Securities:

Savings Bonds

Your parents or grandparents may have purchased a savings bond for you when you were born, but you can also purchase them yourself.  Savings Bonds are purchased at face value(a $50 savings bond costs $50) and the interest accumulates for up to 30 years.  Like a CD, you must hold the bond for some time(usually one year) or face a loss of interest and fees.  They earn a fairly low interest rate, but this interest compounds(semi-annually), meaning that the value of a savings bond accelerates over time, unlike other treasury securities.

Treasury Bills

Would you pay $97 for something that is worth $100(on paper)?  This is precisely what happens when you purchase a Treasury Bill.  Bills are sold at a discount, which is equal to the amount of interest you would earn.  However, Treasury Bills do not pay any interest directly; instead, they are sold at a discount of their face value and thus “earn” by selling at face value upon maturity.  Rates vary from .25%(1 month) to .60%(1 year).

Treasury Notes

The third option for purchase are Treasury Notes, sold in terms of 2, 3, 5, 7 or 10 years.  You pay face value for the bond, interest is paid and credited every six months(semi-annually), and when the note matures you receive the face value.  Here’s an example:

Say you have a $10,000 ten year treasury note with a interest rate of 4.25%. Every six months, you’ll receive a payment of $217.50 from the government, then when the note matures, you can redeem it for $10,000.

The United States government has made it very easy to invest in treasury securities via the Internet. The site enables you to purchase these treasuries directly from the government either as an auction participant or at a set price, and also manage these investments by indicating what you wish to happen to the interest payments and what happens upon maturity.

Focus On The Process When Working Toward Your Goals

I started thinking about goal setting after reading Todd Brison and his article, “5 Five Minute Habits to Try Today.” In his post, Todd writes about creating habits and how we can “build the habit of building habits.”

How does this apply to goal setting? Well think about a goal that you have for yourself right now. Ask yourself, “What am I doing every day to achieve this goal?”

Let’s digress for a moment and use one of my favorite topics to help explain…college football.

Nick Saban, Head Football Coach at the University of Alabama, is one of the most successful coaches of all time. There’s not enough room to list all he and the program has accomplished. But if you asked him what is proudest accomplishment is, you might hear him say something about “The Process.”

The Process as explained by one of Saban’s former players, is “basically just focusing on the little things and not getting wrapped up in the big picture.” Saban might describe it as “what you have to do day in and day out to be successful.” Why this approach? Years of coaching has taught him that there are just too many things that he has no control over. He doesn’t set a goal for the program of winning a national championship every year(even though it seems like they do) because a lot of what goes into winning a national championship is beyond their control(rankings, injuries, opponents, etc.) Simply stated, he focuses not on the outcome, but the process.


“Know what you want to accomplish and focus on the process rather than the outcome.” -Nick Saban

When we are trying to set goals for ourselves(personal, financial, etc.) we too often focus on the outcome or what specifically we want to achieve. Truth is sometimes we will have very little control over the outcome. The market could crash. You could lose your job or become ill. The list goes on and on.

Instead put your focus on the process of what you are going to do to accomplish your goal. This will provide guidance of what you need to be doing on a daily basis. Why? Well if you don’t reach your goal, you can review and evaluate your process and identify what you are doing that isn’t working.

Here is an example that I discuss with my students early on in the semester. This is a finance specific goal, but can apply to many situations:

I try to get our students to think about where they see themselves in the future. Where? Doing what? All things lifestyle related. Something that most everyone will need in the future is cash(say $10,000). Maybe it’s for a down payment on a house or to start an investment portfolio.

Unfortunately there is so much uncertainty that it is difficult to predict what will happen in 5–10 years. You may lose your job. You might get relocated. Maybe you go to grad school and have to delay working. Or maybe things go better than expected and you need to readjust goal.

Now let’s remove the $10,000 goal and instead change it to saving 10% of your monthly income or reduce your spending on non-necessities every month. Not only do you have a clear, measurable plan of what you need to do to reach your goal, but you are in complete control over the process.

My next post will have some technology tips for helping with the “process” of reaching your goals.

Three Facts About Personal Finance

Fact:  Kids think they know everything.  Also fact:  I know more than them.

If you teach for long enough and spend as much time around kids(not my own) as I have, you hear some real doozies when it comes to what kids think is true.  Everything from money coming from a “higher power” to what teachers actually do on their summer vacation.  Well the world of personal finance is no exception.  Here are three facts about personal finance and an explanation to clear up any misconceptions:

Fact #1:  Being In A Tax Bracket Does Not Mean All of Your Money is Taxed at That Percentage

Your at a party or gathering and someone inevitably starts going on and on about how they moved into a higher tax bracket.  Step 1:  Leave immediately!  But if you must stay because you got stranded in Long Island like Jerry and Elaine, you will be well equipped to participate in the dialogue after reading this.

These tax brackets they are referring to are the federal income tax brackets, which provide a range of incomes taxed at a given rate.  In the United States, we have what is called a Progressive Tax system.  It taxes your highest earning dollars at a higher rate than your lowest earning dollars.  For all examples to follow, we will use someone with taxable income of $75,000.

As you can see in the chart below, this person’s lowest earning dollars($0-$9,275) with be taxed at a 10% rate.  Their next highest earning dollars($9,275-$37,650) are taxed at 15%.  And so on…

Screen Shot 2016-01-10 at 9.44.08 PM

Tax Brackets v Average Tax Rate

Your tax bracket is the percentage on which your highest earning dollars are taxed.  So, someone who has a taxable income of $75,000 would be in the 25% tax bracket.  What that doesn’t mean is that they pay 25% in federal income tax.

Compare that 25% to their average tax rate, which is your tax in dollars as a percentage of your income:

Screen Shot 2016-01-10 at 9.51.58 PM

While someone may be in the 25% tax bracket, they are actually paying less than that percentage.

So the next time you are at your party or gathering, feel free to chime in and drop some tax bracket knowledge.

Fact #2:  The Minimum Deposit to Open a Checking or Savings Account is Useless

I hear it all the time.  “For as little as…” and insert some business promotion.  Well we can now add commercial banks to that.

Let’s use Chase Bank as an example(Small disclaimer here:  I am a Chase customer for multiple banking services and am very pleased with their service.)  They advertise that you can open a Chase Savings account for a deposit of only $25.  Sign me up! However, buried in all the benefits of the account is the caveat that you need to maintain a minimum daily balance of $300.  What the…?  If you don’t, you will be charged a monthly service fee* of $5.  So if you are looking for a way to lose $25, open a savings account with Chase, do nothing and five months later you will have donated your money to Chase.

*Chase provides you with ways to avoid paying this fee, which you can read about here.

Fact #3:  Whether You Choose Debit or Credit, The Money Comes From the Same Place

You run into Walgreens to buy something frivolous.  You’ve got your debit card in hand and are ready to make a quick and speedy check out, hoping no one you know sees you buying a gallon of ice cream at 9:30 at night.  You swipe your card and then comes the dreaded question:  debit or credit?  Huh?  What?  I never took accounting!  I don’t have a credit card!  Is that my neighbor?

Have no fear.  The answer is quite simple:

  1. No matter which option you choose, the money comes from the same place, your checking account.  So no, you didn’t sign up for a credit card with out knowing.
  2. The difference lies is when the money is withdrawn.  If you choose debit, you will have to enter your PIN, which will classify it as an “on-line” transaction that will occur in real time.  Translation?  The money will be withdrawn IMMEDIATELY!  With using a debit card as credit, it’s an offline transaction.  The funds for offline transactions are deducted after the merchant settles the purchase with the credit card processor and typically take 2-3 days(usually sooner**) to be reflected in your account balance.

**Another small disclaimer:  I have run tests with my own checking account and have seen a “credit” transaction withdrawn in a little as hours time.  I do not condone this method as a way to pay for things before the money is in your account.

If you have questions about anything you have read, or are looking for some more personal finance conversation, please feel free to email me at any time.

Thanks for reading!

Bringing Creativity to the Classroom

Much like this blog, I have always struggled with “starting” class.  Objectives?  Learning Targets?  Tasks?  Agendas?  I started to incorporate Creative Challenges in our classroom.  These activities(all of them can be done in less than 5 minutes) will challenge your student’s thinking and get their brains active right from the get go!

Here are three activities that I have used.  My hope is that you can incorporate these in your class.

1.  Incomplete Figures

Developed in the ’60s by psychologist Ellis Paul Torrance, the Torrance Test of Creative Thinking (TTCT) sought to identify a creativity-oriented alternative to IQ testing.

You’re given a shape like the below, and then asked to complete the image(examples on the right)


2.  Remote Association

The Remote Associates Test takes three unrelated words, such as “Call – Pay – Line,” and asks you to come up with a fourth word that connects all three words.  You won’t have much luck solving this type of problem by methodically going through all the compound words and synonyms for ‘call’ ‘pay’ and ‘line’ and comparing them to each other. As with riddles, the solutions typically arise as a flash of insight.  Click here for a sample test.

3.  Alternative Uses

Developed in the 1960s, the Alternative Uses Test stretches your creativity by giving you a set amount of time(I usually give 3 minutes) to think of as many uses as possible for an everyday object.

Try it yourself:

How many uses can you think of for a spoon? You have two minutes… Go!


Warren Buffett Says to Invest as Much as You Can in This

Most people when they think about investing, their mind goes to the stock market, financial reports or maybe even real estate. Warren Buffet, the most successful investor of our time, has some advice about the BEST investment you can make:


What are you doing today to invest in yourself?