Who: This post is for young folks who either do not have a credit card or for those who do have a credit card and are just starting to build their credit history.
What: This is an elementary post about building and maintaining a strong history. The focus of this post will be on how college students and other young professionals can get their credit ready for approval of a mortgage or another loan in the future.

Building a credit history takes time, consistency, and responsibility. I will already assume that you know why having a solid credit history and credit score is important. If you don’t, you’ll want to be sure you stay tuned for some upcoming posts about credit reports and credit scores.

So, how do you build a credit history?

It takes time. BE PATIENT. Just like you would not make an investment decision based on a short period of historical performance, credit companies will not make decisions about your creditworthiness based on a short history. There are many time related factors that affect your credit rating and they include (but are not limited to), age of oldest account and average account age.

What does this mean? It means you should get a credit card as soon as you can. This comes with the important caveat that you should not get a credit card if you will not be responsible with it. If you think you can be responsible, you should get a credit card ASAP. It doesn’t matter if you use it sparingly, just having an account on your credit report that is a half decade old once you’re out of college will be very helpful.

Be responsible. Pay on time, all the time. Late payments go on your credit report so make sure that you never miss a payment. With one credit card, this is very easy. Just put a post it note on your desk that has the date your statement closes and the date that the payment is due. I won’t go into all the different ways to remember, but I will just say that you should not miss any payments!

That’s it, seriously!

As I said before, it just takes some responsibility and some time to build an excellent credit history. Keep in mind that there are many ways to keep your credit in tip top shape that are bit more complicated than the steps mentioned here, but this is just an introduction for the young folks out there.

If you’re a college student and you’re looking for a card to build your credit history with and earn great rewards at the same time, there is no card that I would recommend more highly than the Citi mtvU Plainum Visa Card.

Popularity: 16%

Who: This is a post for people who are afflicted with or know someone who is afflicted with ATM-itis.
What: This post will discuss how to optimize your ATM transactions and avoid unnecessary fees.

Automatic Teller Machines (ATMs) are everywhere. They lure you in and pretend to give you money, when in actuality, they TAKE your money. They are evil creatures with bad intentions. They show up in the most random places, even at the edge of the universe, as you can see here:

With ATMs so accessible, you know what drives me crazy? Those people that go to the ATM 2-3 times/week and withdraw $20 each time. This is ESPECIALLY gut wrenching when they are willing to be charged between $2.00 and $4.00 EACH time they make withdrawal. That is almost $5-10 wasted EVERY week.

Here are some tips to stop the ATM addiction, and save some money while you’re at it.

1) BUDGET - Figure out how much you will need for a week or for a month worth of cash spending and take the money out and keep it safely in your room! Take out how much you need every few days or every week and keep the rest out of reach! Easy, a built in ATM with no fees.

2) USE A CREDIT CARD - There are plenty of reasons to use a credit card. One of them is that you don’t need to spend all your lunch money on ATM fees.

3) KEEP EMERGENCY MONEY IN WALLET - In case of emergencies, when you may need SOME money immediately, just hide a Jefferson in a rarely used pocket of your wallet. So if you get the midnight munchies, you can take it out (but is this a REAL emergency? You tell me.)

4) GO TO A BANK TELLER, YOU ANTI-SOCIAL BUM - It may take you a few more minutes, but if you go during a non-peak time you should be able to get money quickly and easily by just speaking to a bank teller. Don’t pay those lame fees.

And, if you go to ATM’s that don’t charge you fees? Ignore this post and pat yourself on the back.

Popularity: 16%

This week, tune into the Superbowl Edition of the Carnival of Investing (#59)! You can read AFR’s suggestion to Use Limit Orders When Purchasing Stocks. The Carnival is hosted by MoneySmartLife.

If stocks aren’t your thing, then maybe you’re looking to save some money by Converting your IRA During Low Income Years, featured on The Carnival of Personal Finance #86. This week’s carnival is hosted by one of my personal favorites, the Simple Dollar.

Popularity: 11%

Who: This post is for people who are planning to have some years in the near future in which they will be making significantly less income than they currently are. You might just want to take some years off travelling, or you may be leaving your job to pursue a full-time graduate degree.
What: This post will discuss a little tip for decreasing the taxes you pay on your retirement income. The post discusses 401k’s and IRA’s so an elementary understanding of these investment vehicles is understood.

The Premise

When one converts a Traditional IRA to a Roth IRA, the conversion amount is taxed at the converter’s standard income tax rate. For this reason, it becomes worse to make a conversion during years of relatively high income, assuming a variable income from year to year. So why not convert during the year(s) you are in graduate school so you can be charged much less tax than you would if you converted during a time of higher income?

This post will not discuss the nuances of 401k rollovers and IRA conversions, but you are encouraged to stay tuned for future posts on the topic and/or do the research yourself. This post is meant to serve as only an outline for how to save yourself some money on taxes.

How to Do It

1) If you are planning on leaving work to go to graduate school, you should have been (or start to) contributing to a traditional 401k for this plan to work optimally. Once you leave your positive conduct a ROLLOVER on your Traditional 401k to put it into a Traditional IRA. This isn’t difficult, there is just some paperwork to fill out.

2) The next step is to wait until the year in which you made income, is over (assuming the following year is the year you expect to have very little income). For example, if you worked until August 2006 and started graduate school in September 2006, you would want to wait until January 2007 before you perform this step. Step 2 is to CONVERT your traditional IRA to a Roth IRA in the year with little income. If you just want to deal with a Traditional IRA conversion without worrying about 401k’s, then ignore step 1!

Caveats and Benefits

So why are we doing this again? First of all, once the money is in your Roth IRA, it is no longer taxable. When you withdraw it (in retirement) you will owe no taxes on the contributions or the earnings! However, if they remained in a Traditional IRA, you would have to pay taxes at your retirement tax bracket. If your tax bracket now is lower than that, why not convert the IRA so the money becomes “tax sheltered”? This conversion allows you to shelter your money for less than you normally would have been able to!

Does my conversion count as a “contribution” to my Roth IRA that is withdrawable any time? Ah, wouldn’t that be nice? Unfortunately, conversion contributions are counted differently than regular contributions. There is a 5 year holding period before you can withdraw the funds without penalty! Keep this in mind if you’re just looking for a quick way to cash out some money.

Popularity: 19%

Who: This post is for people who often use market orders when purchasing their stocks. This post will be helpful for people who are looking to optimize their trading strategies for maximal gains (who isn’t?)
What: This post will discuss the merits of using limit orders to buy and sell stocks as opposed to market orders.

Market Order vs. Limit Order: What’s the Difference?

Simply put, a market order just allows you to specfy the symbol and the number of shares you want to buy or sell. Your purchase will be routed to the appropriate parties who will get you the shares at the then current market price.

On the other hand, a limit order requires you to specify a specific price or limit on the maximum you want to buy a stock for or a minimum you want to sell a stock for. Your trade is then routed to the appropriate parties and filled only if the price is >= to your limit (for a sell) or the price is <= your limit (for a buy.) Finally, with a limit order you can pick a time period for your order to be active. You can set it to expire at the end of the day, if your order has not been filled, etc.

Why Use Limit Orders?

First of all, using limit orders is especially critical when you are trading stocks of small companies. As explained in my post about Penny Stocks, small companies have illiquid stock prices. This means that they do not have a high volume and for the most part the difference between the price the stock is selling at and the price that people are offering for the stock (bid/ask spread) is somewhat high. It is very important to use limit orders when making purchases or sales of these stocks because market orders may vary wildly in price from the last reported price of the security. The price movements in illiquid stocks are usually larger in that they come in “chunks,” so it is in your best interest to control your orders/sales.

Second, limit orders give you a level of control over your purchases and sales. By setting a buy price just below the current price of the security, you can save a few cents per share and automatically have the purchase be made on a slight downtick in the stock. If your buy price is RIGHT below the current price, a slight market movement downward will allow you to get your stocks at a slight discount.

Let’s assume you are buying 100 shares. If you place a limit order to buy at $50 in the morning when the stock is at $53 and the stock dips to $50 in the afternoon and and then hits $52 right before close… You’re in pretty good shape. If you had put in a market order at $53, you’d be down $100. However, since you placed a limit order at $50, you are $200 in the money.

The downside to this is that you may miss out on potentially large price jumps if the stock price never hits your limit. For example, if you set your buy price at $50.01 and the current stock price is $50.02 and it shoots up to $55.00 without ever going to $50.01, you’ll never have made the purchase. If you were going to purchase 100 shares, you’d have missed out on a $498 gain by trying to save $1. Is it worth it?

If you think that this second point sounds a lot like trying to time the market, you’re not crazy. However, while I do not advocate trying to time the market, there are instances in which you are willing to pay a certain price for a given security at a given time, and no more. For these cases, it is best to place a limit order at a price you are comfortable with. If your limit is never reached, the trade is never made. If the limit is reached, you get a purchase that was made at a price *you* agreed to, not Mr. Market.

Be Careful!

Though it is getting rarer, some brokers charge more for limit orders and other special types of orders than they do for regular market orders. When you are choosing your broker, make sure to look for one that does not charge extra for limit orders.

Popularity: 14%