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Guest Post: Three Best Financial Decisions from Trapper…

May 12, 2011

I’ve been pretty stoked to invite a few people to write guest posts. A few weeks ago, I invited my friend Trapper to answer the questions, “What have been the three best financial decisions you’ve made?”. I’m glad he responded so positively. I’ve known Trapper for about a decade-he’s always been sharp. Here is his response:

Finances have always been intriguing to me.  While money can never buy happiness, becoming entangled in debt, or being a slave to your money will certainly bring misery.   It has been said that money is a wonderful servant, but a terrible master.  That being said, here are a few of the things I have done to make sure I keep money working for me – not the other way around.

1. Start saving early

If earning interest is making money your servant, compounding interest is creating an army of servants – and the key to compound interest is starting early.  At my first post-college job, my company had a 6% match to our 401k.  It would have been silly to not put in the 6%.  I decided I would try 8% from the get-go, and it was surprising that I never missed the money.  Heck, we just finished living the poor college student life, so we felt like we had a lot of money anyway.  When a raise came along we bumped it up to 10, then 12%. We know that money is basically unavailable to us now, but we feel like we have made some progress toward “getting rich slow.”  I check my balance every once in awhile and it makes me feel good knowing it is there and growing (for the most part.) As the years go by and the interest compounds, I will definitely reap the benefits of starting early.

2. Use a credit card

My wife and I use a credit card for everything we possibly can.  We have chosen to use a credit card that gives cash back for every purchase, although I know others that like airline miles, rewards, etc.  We have a credit limit that is much higher than we actually use, but we only spend what we know we can pay.  At the end of the month, the credit card is paid off in full.  The beauty of this is that we end up getting hundreds of dollars back every year just for spending what we already do anyway.  Our credit card also has 100% fraud protection, so if our information is stolen and used, we won’t be liable for any of the fraudulent charges (I know a lot of banks do this as well.)  In fact, I have had my credit card company contact me via texts and phone calls when they see strange patterns in our spending.  That makes me feel pretty good that somebody is trying to help me avoid fraud.  The flipside to this is not controlling your spending and ending up paying for a new TV for 6 years or something ridiculous like that – we don’t let that happen.

3.  Be smart about borrowing

Another aspect of credit is having a good credit score and history.  When we first got married, I had some credit history, while my wife had pretty much none.  We did small things like putting cell phones and other basic bills in her name, then working our way up to signing together on a car loan, and eventually a home.  Having no credit is nearly as bad as poor credit.  Either way you won’t get a loan, when/if you need to borrow.  One of the best things we have done is never let a loan mature completely.  It is a little scary to look at the loan you have and the total amount you will pay if you only make the minimum required payment.  A house can have you paying over double the purchase price if you run it out to 30 years!  Even car loans can add up.  The only times we have taken loans like this is when we have been sure that we can make extra payments toward principle and pay them off early.

While these have worked for me, I think every person’s financial situation will be different.  Understanding the basic principles of how money works and staying out of debt are the basic keys to personal financial happiness in any situation.

Thanks Trapper! Great ideas! If you have any comments or questions for Trapper please add them to the comments section below…

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