Simple Debt-Free Finance » Saving

Money Saving Tip of the Day – The Only Money Saving Tip You Need!

Joe — Tue, 22 May 2012 14:20:56 +0000

Simple money saving tips are scattered about the Internet from hell to breakfast. They usually focus on small things you can do to find small amounts of cash. They often look like:

sell your junk on eBay
sign up for free customer rewards programs
never go grocery shopping without a list
never pay retail price

…and so on.

They’re OK as money saving tips go, but you’re going to need a lot of them to make a big difference in your finances.

I’ve decided to share what I believe to be a more significant money saving tip. It’s actually more of a concept, or a change in the way you think about spending than a straightforward money saving tip.

Incidentally, this is also my entry to the $500 Financial Highway giveaway, sponsored by Life Insurance Finder – the easiest place to compare life insurance quotes.

That giveaway inspired me to share this money saving tip, but I probably would have gotten around to sharing it eventually. I’ve found it to be a solid benefit to my own finances, and has helped blaze a path from debt to prosperity for my family’s finances.

The Only Money Saving Tip You Need!

My absolute best money saving tip is this: Trade recurring expenses for one-time expenses where you can, and limit the rest.

Yep that’s it. Simple. But how many people actually think about this when the make a purchase or sign up for a service?

Take a look at all your expenses for a given month. You’ll likely see things like, cable television, auto insurance, car payment, gym membership, credit card bill and more.

Let’s consider the credit card bill for a moment. People decide to take action and pay down their credit card debt when that monthly payment becomes too large, not because they see a double digit interest rate. But it’s that interest rate and monthly balance that cause the payment to increase. Pay off the credit card in full every month, and you can save thousands.

Cars are another great example because the cost is usually so high. It’s more difficult to buy a car with cash, but doing so eliminates the monthly bill entirely. Since I’ve paid off my car loan, I don’t worry about maintenance costs as much as when I had a car payment. The money that used to go to pay off the car now goes in my bank account every month. I sleep better at night. I’ve gone from feeling that the unexpected car repair was some act of financial sabotage to my budget, to feeling like it’s something I can manage. All because I got rid of that monthly car payment.

Even little things like the gym membership bleed your income from you. The great thing about being debt free is that your take home pay actually is your take home pay!

Reconsider things you thought you needed. If you can live without it, then why are you spending money on it month after month.

Consider a one time expense of gym equipment instead of the monthly membership due.

There are alternatives to cable television. You can cut the cord and still see your favorite shows for a fraction of the cost of cable, if not free.

Most retailers and service providers know if they can hook you on a recurring payment or payment plan, they can get more out of you over time without you even batting an eye. Some even charge you more while doing it. My car insurance provider is one example. They actually charge $3 a month extra for recurring payments, but that fee is waived if I pay in one lump sum.

I still make payments – to myself. I take the money that used to go to the car insurance every month, and put it in a bank account for the car insurance. I save on the fee and earn interest while doing it.

I know it’s not easy to come up with the extra cash needed to make the switch from recurring payments, but following this single money saving tip will save you more than most of the little things combined – and you can use it forever – there’s only so many times you can sell your junk on eBay.

My advice is to follow those smaller money saving tips, stockpile the extra cash from those and use it to get off the recurring payment treadmill.

Following this money saving tip also has an added benefit – it will make your finances simpler. Less transactions per month means less to track, which makes managing your finances quicker and easy. That means you’re more likely to stay on top of things and know where your money is going. That’s a win in my book.

What are some of your money saving tips (large or small)?

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When a $50,000 Salary Can Feel Like Minimum Wage.

Joe — Mon, 05 Mar 2012 18:05:08 +0000

How can $50,000 seem like minimum wage? According to the Social Security Administration’s National Average Wage Index, the national average income for the USA in 2011 was $41,673.83. That means that to half the country, $50,000 a year would be a $8,326 raise, and yet this woman says $50,000 feels like minimum wage !

Well, if you read her story it makes a lot of sense.

Basically, she went from working at home to a full time office job and once she totaled the change in her spending she realized she was making about $7.50 per hour.

Here are some of the things she attributes to lowering her effective income:

Commuting costs – increased wear and tear on her car, the cost of gas, etc…
Childcare expenses
Eating out more – less time to prepare meals at home means eating out or buying take out more frequently, which is more expensive.
Increase in clothing and personal care expenses (i.e. hair and nail care, proper office attire, etc..)
Coping with stress by spending more on vacations, or entertainment.. buying more wants than needs.

Her change in lifestyle brought about a change in spending with no increase in saving. It happens to a lot of people and it’s not always easy or even possible to fix. She could do some things differently. She probably doesn’t need to spend $40 a week on clothes, and she could plan ahead to prepare more meals at home, but that takes work too.

This is the kind of situation my wife and I work very hard to avoid. We avoid debt whenever possible to keep as much of our income as possible. I work hard to secure a steady income, and she works hard (sometimes harder) to make that income go as far as possible.

She’s the coupon clipper and meal planner. She’s turned comparison shopping into a competitive sport. She scours thrift shops and consignment stores for children’s clothes, and puts a healthy low cost meal on the table every day of every week all year long.

It’s not easy, but it’s cheaper than if she went back to work full time. And we believe it’s better for the family. Living on a single income is not easy, but it is possible and I believe better in most cases for families. The key is twofold: 1) limit expenses as much as possible, and 2) increase income.

It’s really no different than what most people should be trying to do regardless of their employment situation, but as the Yahoo! article makes clear, it’s so much easier to lose control of your spending when both people work out of the house. Those little money leaks turn into an effective loss of income over time.

How to Find the Best Place To Put Your Savings.

Joe — Tue, 04 Oct 2011 16:31:26 +0000

The Federal Reserve has recently announced that it will be keeping interest rates that banks pay to borrow money at 0 – 0.25% for the foreseeable future. This is done in the hopes of encouraging borrowers and spenders, but punishes savers. This makes it harder than ever to find the best place to let your emergency fund grow. But just because it’s difficult to find a place to make your money work harder for you doesn’t mean you should let it sit idle in a low yield bank account!

While it’s easy to find places to stash your cash that pay more than the average bank savings account (currently 0.08%!), high yield isn’t the most important thing when looking for a home for your emergency fund.

The two most important factors to determining where to keep your emergency cash are:

Safety
Liquidity

“Safety” is a measure of short term risk. Putting your emergency fund in the stock market is foolish because stocks can lose money on any given day, and you need to be able to count on your money being there when you need it.

Certificates of deposit are safe. They are FDIC insured, so you cannot lose principal. But this is where liquidity comes into play. CD’s are safe, but you don’t want your emergency fund tied up in a 5-year CD when you need that money now.

Because of these two factors, the most common places to store your emergency fund money is in a high yield savings account and sometimes a short term certificate of deposit (CD). You could put some of your savings in a savings account, and the bulk of it in a CD. This way you have immediate access to what’s in the savings account, but the bulk of your fund would be in a CD earning higher interest.

Ideally, you’d put the money you would need for repair bills on the house or car in the savings account, and you’d use the CD for that part of your savings you would tap only in the event of a loss of income or some larger emergency.

In the current economic environment however, it makes sense to use only the high yield savings account and skip CDs. Here’s why…

High yield savings account vs. a 1 year CD.

A quick look at yields on 1 year CDs shows that the highest yielding CD (currently offered by Sallie Mae) only offers a tenth of a percent more that the highest yielding savings account, but you wouldn’t have access to your money for an entire year (without penalties). That’s simply not worth tying up your money like that.

So, on to high yield savings accounts…

How to Find The Best High Yield Savings Accounts.

First, head over to BankRate.com and check out their list of high yield savings accounts. Sort by APY (the yield you can expect if you leave your money in the account for a full 365 days), and work down the list. Be sure to read the details of the terms and look for a star rating of 4 or 5.

That star rating is Bankrate’s rating system which rates a financial institutions solvency and safety, not customer service or satisfaction. It’s meant to give an indication of the likelihood of the bank being closed by the FDIC.

For the record, neither of my banks is on the list (ING direct or HSBC)*, so it’s not the only resource you can use but it is a good place to start. If there’s a bank or credit union you’re interested in, you can search Bankrate’s safety ratings.

They also offer a checking account search.

* I’ve been a happy customer of both HSBC and ING Direct for over five years now. I’ve kept the bulk of my savings at HSBC direct, but they have recently decreased their rate. It’s still much higher than the average though. ING direct has been very good to me, and they still sport one of the highest rates and easiest to use website in online banking. They’ve recently been acquired by Capital One though, and a lot of people are not happy about that. I haven’t seen any changes yet though, so I’m taking a wait-and-see approach. Plus there’s the ever popular $25 ING Referral codes that give you an extra $25 free when you open an account with $250 . (that’s an immediate 10% return on your money, for those of you playing along at home)

Look for special deals.

It’s also a good idea to check out online forums, like the FatWallet finance forum and see what people are saying about various banks and account offerings. You can also search for discussions on high yield savings accounts and learn about the most recent perks for signing up with various banks. Sometimes they offer introductory rates that are higher than normal, or cash back when you open an account. Public forums like FatWallet’s are a great source for getting the experience of real customers, instead of marketing execs.

Please share any tips, tricks or experience you may have in the comment section below.

Happy Saving!

Can a Website Teach Kids About Money (VIDEO).

Joe — Tue, 20 Sep 2011 14:04:07 +0000

One thing that seems to be universally agreed upon is that if more people learned how to manage their money at a younger age, the country would be in a far better place as a whole, financially speaking.

How young is “young”, and is there such a thing as “too young” to learn about money?

I personally believe that there is no such thing as “too young”, which is why I wrote about games to teach children about money a while back. That post focuses on the toddler and elementary school age kids, but I don’t think you’re ever too old to learn about money either.

So that post was about role-playing style games to play with your children, but here’s a video about websites that can help your older children to learn money basics like budgeting and delayed gratification.

The video (above) profiles 10-year old Evan Lipset who’s used a site called ThreeJars (Allowance Made Easy) for 10 months. He claims to have saved $500 in allowance over that time. Not bad for a kid who only wanted enough for an iPad.

ThreeJars creates the incentive for the child to prioritize and set financial goals, and allows the parent to approve or deny various goals or money moves. It makes tracking easy, and visually appealing. The downside is that it cost $30 a year.

Two other, similar sites offer free levels of membership. They are FamilyMint (Helping kids appreciate money) and Zefty (Online Allowance and Money Management for Kids & Parents.

Never Take Out a Car Loan Again! (in 5 Simple Steps).

Joe — Tue, 09 Aug 2011 12:37:54 +0000

It’s a well known “secret” that the average American cannot afford a new car . That article focuses mostly on the fact that people borrow way more than they should when buying a new car. But this post is about buying a car outright – with no financing. Very few people can afford to buy a new car without taking out a loan, but they would be better off if they could only figure out how to break the cycle of new car – new loan.

Matt Jabs shared his ideas on How to STOP Financing Your Vehicles at DebtFreeAdventure.com and it got me fired up on the topic again.

Regular readers already know that I learned a lot from my expensive mistake buying a car when I was younger. Mostly what I learned was how not to get entirely ripped off in the process. I thought at the time that it was used car salesmen that were out to rob you blind, but I learned that the new car salesmen can take a lot more without you ever really being aware of it – until it’s too late.

So, I learned what NOT to do when buying a new car. Years later, when my wife and I were expecting our 3rd baby and had to upsize our family vehicle, I put those lessons to work and shared a few more lessons I learned when buying a car.

But, if you click through to that last link you’ll notice while I didn’t get taken for a ride, I still had to take out a loan for the new car.

The truth of the matter is that getting off the financing treadmill is just not that easy.

Here are Matt’s 5 tips to stop financing your vehicles:

Stop thinking you have to borrow money to buy a car.
Aggressively pay down existing auto loans.
Continue saving after the loan is paid off.
Buy used.
Save for repairs and maintenance.

To be honest, my wife and I did #2 and 3 above before we upsized our car… we just didn’t have enough time between paying off the previous loan and buying the new car, so we had to finance a good chunk of it. We also bought used. If it was just my car, I probably would have bought an even older car and financed less, but since it’s the family car and I would hate for my wife to break down in the middle of nowhere with 3 small children, we settled for a 2 year old vehicle. Most of the depreciation was over at that point also.

So, we’ve made progress in the process, but we’re not there yet. Hey, I said they were simple steps, not easy.

Best High Yield Savings Account Rates Of 2011.

Joe — Thu, 04 Aug 2011 19:55:42 +0000

Just as there are buyer’s markets and sellers markets in real estate, so there are saver’s markets and spender’s markets in banking. It’s by design, although the Federal Reserve may prefer to look at low interest rates as spurring investment rather than spending, but the truth of the matter is that low interest rates typical spur more debt than more investing.

Alas, such is the state of savings rates today – pitiful!

But just because rates are low, doesn’t mean there aren’t better choices than the 0.01% local banks seem to give. Here’s a list of the highest yielding savings accounts as of August, 2011 (in order of rate, highest to lowest):

Everbank offers high-yield money market account with an APY of 1.01%. The minimum deposit is $1,500 and there’s an $8.95 per month fee whenever your balance is less than $5,000 and a $10 transaction fee for every transaction over the monthly limit. (click the link above for details)
Incredible Bank offers a checking account with 1.21% APY with a $1,000 minimum deposit to open. There’s a list of additional fees though.
SFGI Direct offers a 1.11% APY savings account with a $500 minimum to open.
Discover Bank has a 1.15% APY online savings account with a $500 minimum to open. click here for fees
CNB Bank Direct offers 1.15% APY on its high-yield savings account with a $1 minimum balance. No mention of fees
Sallie Mae Bank has a 1.10% APY high-yield savings account with an additional 10% rewards match on Upromise accounts.
SmartyPig is offering 1.10% APY on its savings account.
Capital One has an online savings account that pays 1.10% APY on balances over $1000. If you have a Capital One credit card, you can earn a 10% bonus on your interest earned.
Nationwide Bank is paying 0.50% APY with a $300 minimum balance. (click the link above for fees)
OneWest Bank has a Green Savings account that currently pays 1.00% APY, with no minimum.
iGOBanking is providing a 1.01% APY with no fees and no minimums.
One of my favorites, ING Direct is paying 1.00% APY with no minimums on its Orange Savings account Note: If you’re interested in ING, you can get an extra $25 when you open with one of these referral codes (email me if they have expired, and I’ll send you a fresh one)
American Express offers a 1.00% APY high-yield savings account with no fees and no minimums.
Dollar Savings Direct has an APY of 0.90% with no fees and a $1000 minimum balance.
FNBO Direct has an 0.85% APY online savings account with a $1 minimum deposit.
The HSBC online savings account currently provides an 0.80% APY. There are no fees and no minimums, but you need at least $1 to open the account. HSBC is my other high yield savings account (ING is the 1st), and I’ve had no complaints.
Emigrant Direct also offers 0.80% APY with no fees and no minimums.

You’ll likely notice a trend as you go down the list – as the yield drops, so do the fees and additional requirements. Also, many have implemented new fees and requirements due to the Frank-Dodd financial regulation passed by Congress after the recent financial meltdown. You didn’t think the banks were going to pay those new regulation fees out of pocket, did you?

Games to Teach Children About Money.

Joe — Fri, 20 May 2011 17:38:27 +0000

It’s never too early to start learning about money. In fact, the earlier parents begin to teach children about money and money management, the better off everyone would be. Children who learn proper money management skills early in life are less likely to end up as boomerang kids, living in their parent’s basement at 27 years old.

Here are some ideas for games to teach young children about money and basic money skills. best of all, they’re free, interactive and imaginative – no computers, television or board games here!

Let’s get started…

Money Games for Toddlers

Children are naturally inquisitive. Just because they are too young to learn simple math and grasp the beauty of compounding interest doesn’t mean they can’t start to learn about money. Begin with the basics.

Grab a penny, a nickel, a dime and a quarter. Teach your toddler the names of each coin. Engage him in tactile interaction with the coins – get a small piece of Tupperware, or a box and practice taking the coins out and putting them back in. Toddlers LOVE this kind of repetitive activity.

The mind of a toddler is like a sponge. You don’t need to force feed them the names and quiz them, flashcard style. Simply holding up a penny and saying, “Penny” before placing it in the container is often time enough to create that bond between the name of the item and the item itself.

Start small with 1 or 2 coins and work your way up. Ask your toddler to grab the penny or nickel. Make a big deal when he gets it right. It may not seem like much, but it’ll be a fun game for him and the positive reinforcement will encourage him to new heights.

Image by Timeout Kids.

Games for Preschoolers

Once your child has progressed beyond the name and coin recognition stage, and has moved into coloring, drawing and general crayon work, start adding more detail to the coin game. Start teaching the value of the coins, replacing the names with the monetary equivalent. For example, instead of saying “where’s the nickel?” you can say, “Where’s the 5 cent piece” or “Can you find 5 cents?”

While few preschoolers can handle the math required for making change for a dollar, you can start them on the path with simple counting games. Using pennies, you can introduce your child to the concept that 5 pennies equal 1 nickel, and so forth. It’s little more than counting pennies, but it’s a beginning and it’s important.

If your child is a math star, then by all means introduce counting by fives and tens (i.e. nickels and dimes). The point is to start small and work up. You’re not grooming your progeny for MENSA here, but rather laying the ground work for interest in learning and a solid financial background later in life.

Draw a circle for each coin, label it with its cent value and have your child color the circles in with whatever colors they want. Make sure each circle is roughly the right size in relation to the other circles (i.e. the dime should be smaller than the nickel..).

Ask your child to match the coin to the correct circle, using verbal cues. For example: ask, “where does the penny go?”, without pointing.

This will force the child to recognize the penny out of the possible coins laid out before him, and also challenge him to match the coin with the picture he colored.

Games for 5-8 year olds

Play shopkeeper. My middle child is 5 and she loves to play store owner. She takes her stuffed animal collection and spreads it all over the room, and pretends it’s her pet shop.

The rest of the family then takes turns “buying” a pet. It’s great imaginative play, and it provides the opportunity for learning about exchanging money for goods, and making change. It increases money awareness and math skills and best of all – it’s interactive. There is no television or computer to lean on mentally! It’s pure imagination and role play, which then lends itself to discussing and learning about all sorts of things in life – trust me!

This kind of game can be adapted for various levels and interests. Maybe your child isn’t into pets. Maybe it’s superhero action figures, grocery store play food or race cars. Maybe it’s a service, and not a product based store. You can play restaurant – kids love play food and pretend cooking.

You can also adjust the complexity of math and money management skills to the age level. For example, simple whole numbers for the 5 year age set :

Owner: “That pet is $4. ”

Shopper: “Ok, great. Here’s a $5 bill.”

Owner: “Thank you. Here’s a dollar for your change.”

Or for the later ages:

Wait person: “Thank you for dining at Half-Pint Cafe. Here’s your check.” (child provides hand-written lunch check for $12.95)

Diner: “Lunch was wonderful. Thank you.” (parent provides $15 )

Wait person: “Here’s $2.05 change. Please come again.”

Diner: “Oh I will, you can be sure of it!” (parent places $2 on the table for a tip).

So what just happened here? The child learned to make proper change, and practiced his writing skills and manners.

Perhaps the child even learned what a “tip” was. There’s a world of possibilities out there. Mix it up and experiment. What happens when the diner doesn’t give enough money as payment? What happens when you’re the wait person, your child is the diner and you give incorrect change back. See if your child notices, and role play consequences. This is a great opportunity to teach lessons about what’s right and what’s wrong regarding money and how we use it.

Some final thoughts

The earlier you start, the easier it will be to engage your child.

Include the whole family – you might be surprised at what siblings (older and younger) will come up with!

Older siblings can sometimes have an easier time of joining in if they are engaged in the teaching aspect. Get them involved in helping to teach the younger ones and they may learn a thing or two also – or come up with a new variation that may teach something you didn’t think needed to be taught.

Content in this post was inspired by Money Doesn’t Grow On Trees: A Parent’s Guide to Raising Financially Responsible Children

How to Waste Your Money in 15 Easy Steps.

Joe — Tue, 26 Apr 2011 16:33:22 +0000

I came across a Yahoo! finance post the other day that highlighted 25 different money leaks. Some were OK, some were pretty lame. I decided to pick some of the better ones and add some of my own for this list. These are 15 items I think most people probably waste at least a little bit on now and then. Mostly this list should get you thinking about were and how you waste money regularly, so that you can stop and pocket that money instead. This list is by no means meant to be one of items people should never spend money on. Rather, it is a collection of things we often spend on and may have never considered a cheaper alternative.

Here we go… 15 money wasting leaks.

Credit card debt. Carrying a balance – however small – in an excellent way to leak cash from what could otherwise be your savings. Even a modest credit card balance will cost you hundreds of dollars a year at a rate of 10% or more. Do what you can to Get out of credit card debt.
Excessive car maintenance. Premium gas, and unnecessary oil changes are just a couple of the car maintenance costs you can save money on .
Unhealthy habits. Cigarettes are costly, and spending the evening at the bar adds up quickly. You’ll not only save costs, but also save your health by cutting back if not quitting.
More cell phone than you need. Many people find themselves locked into a monthly cell phone contract costing the thousands. That’s all well and good if you really need those features and use the service, but many people simply do not. I was one of these people, and gave up my Verizon bill for a pay as you go Tracfone years ago and have been pocketing the savings ever since.
Buying name-brand instead of generic. Whether it’s clothes or groceries, many name brand products are identical to the generic, but you pay a lot more.
Not asking for a discount or cheaper alternative. Hey, it never hurts to ask. Right?
Not buying beverages in bulk. Soda is cheaper when you buy a 2-liter bottle than a 20oz. bottle. The same is true for many drinks. And snack food to come to that. If you like some chips with your brown-bag lunch, why not by the big bag and bring a few every day in a sandwich bag. You do bring your lunch to work instead of buying, don’t you?
Paying for something that’s ‘Free’. Why spend money when you don’t have to? You can get software for free and your credit report for free among other things, and yet millions continue to pay . Don’t be one of them.
Getting a tax refund. Loaning your hard earned money to the government for nothing in return is one of the most senseless money mistakes going. Yet every year we see stories about the millions who do, and what they’re going to do with their “extra money”. Do yourself and the country a favor – put that money in a saving account instead. You’ll earn interest on it and you’ll still have the money come tax time next year.
Stashing your savings in a low (no) interest checking account. While we’re on the topic of saving money, there are dozens of high yield savings accounts out there, pick one. I recommend ING and HSBC Direct , but there are many other options to choose from.
Paying late fees. This is just a result of poor planning. I know – I’ve done it! Get whatever system works for you in place so you don’t do it again. Either use personal finance software, or a cheap calendar to write due dates on, or get a planner. For Pete’s sake – do something!
Paying ATM fees. This is also because you didn’t think ahead. There is no other reason to pay ATM fees other than poor planning, plain and simple.
Shopping without a list. Be it grocery shopping, or clothes shopping. There’s a reason retailers love you to window shop – you spend more than you would have with a defined list of items. They love it because it’s money in their pocket. Keep money in your pocket instead. Use a list.
Paying for things you don’t use. Sometimes it’s poor or no planning that leads you to that splurge on that spur of the moment purchase. Other times it’s product packaging that forces you to buy more than you need. Case in point: Cable Television. Well, I cut my bill by $40 a month, and so can you! By the way, this is another example of “just asking” for the discount too, albeit there was a fair amount of negotiation with the asking.
Buying a new car, instead of a used one. I know a lot of people argue that a new car is worth the money for the peace of mind that comes from being free from repairs, but take it from me - buying a new car can be costly experience!

Feel free to leave any quick money savers you may have in the comment section!

CD Rate Roundup for March. (video)

Joe — Sun, 13 Mar 2011 18:21:03 +0000

Senior financial analyst with Bankrate.com Greg McBride shares the current state of certificate of deposit rates and the best moves going forward.

Since interest rates are still near an all-time low, yields on most CD’s are pathetic. Couple that with the specter of rising inflation and it’s a tough road for CD investors and anyone living on a fixed income. It’s not surprising then that Mr. McBride recommends finding the highest yielding CDs.

The problem is that even the highest yielding CDs are unlikely to keep pace with a rapid spike in inflation. Still, if you’re looking for the safety and security of CDs, stick to the shortest terms so you can be ready to renew at higher rates when interest rates begin to rise.

Ending America Saves Week With Advice on Saving.

Joe — Sat, 26 Feb 2011 19:06:09 +0000

As America Saves Week draws to a close for 2011, I thought I’d share just one last post of savings advice and commentary. I hope you celebrated by increasing your savings, or at least reconsidering your spending

Retirement

I encountered a problem with my 401(k) and saving for retirement and thought many others probably have experienced this too. I couldn’t find any real solutions on the web, so I wrote about my own solution to Save for Retirement When Your 401(k) Plan Sucks.

RC from Think Your Way To Wealth answers a question that many people ask once they’re out of credit card debt :
I’m Saving Enough To Get the 401k Match From My Employer, Where Do I Invest My Money Next?

College

Anybody with a child of college age knows that college tuition these days is insane. Heck, my oldest kid is in 1st grade I’m terrified to think at how expensive it will be when they head off to college. By that time, kids may be taking out an equivalent of a 30 year mortgage – just for education expenses!

Well, one alternative is to skip college altogether. I’m not saying it’s the best alternative, but it may be beneficial to Save Money and Skip College, at least for a year or two.

But if you or your children are looking at that costly expense, you should probably reconsider majoring in any of these 8 College Degrees with a Poor ROI. Thanks to Financial Highway for the list!

Either way, check out the article at The Amateur Financier about How to Survive 4 Years of College Without Going Broke.

Health savings

Perhaps the biggest expense outpacing incomes aside from college tuition is healthcare. MoneyNing shares a helpful list of 7 Questions to Ask About HSAs and Other Ways to Pay for Medical Expenses that can help get you thinking about how to mitigate these essential costs.

Emergency savings

A basic pillar of personal finance is the emergency savings account. But what is that savings fund for? Well, interestingly it turns out that The Most Common Emergency Expenses are the same regardless of income level. I suppose that’s because some things are unexpected whether you’re a line cook or Bill Gates.

Lastly, Ron at The Wisdom Journal has a poll you can vote in :Which Is Greater – Your Emergency Fund or Your Credit Card Debt?. The results may surprise you…

The Most Common Emergency Expenses.

Joe — Wed, 23 Feb 2011 23:32:51 +0000

The typical American spent $2,000 on unplanned, emergency expenses last year. The two most common kinds of expenses were medical care and motor vehicle repair. Interestingly, that $2,000 figure is the same for both lower-income and higher income households.

The message here is clear: When you don’t have a plan for emergencies, you’re one repair bill away from falling into high interest debt. Using your credit card balance as an emergency fund is no way to ahead.

This information is presented in a Savings Knowledge Quiz offered by AmericaSavesWeek.org.

I encourage you to check out the site, it has quite a few points of interest, such as:

How long it takes to pay off a $1,000 credit card balance at 2% minimum payments and 24% interest. (hint: it’s not pretty!)
How much more families with savings plans save than those without a plan.
How and where you can get “the only free money” available to Americans
The best way for lower income families to build assets and acquire wealth over several decades (hint: It’s not the stock market!)

You’ll also learn fun and useless trivia like the fact that there is over $15 billion in loose change currently circulating through the economy.

How to Save for Retirement When Your 401(k) Plan Sucks.

Joe — Wed, 23 Feb 2011 15:30:54 +0000

I switched jobs last year and along with a better position and bigger salary came a host of benefit changes. One of these changes was my 401(k) plan.

Regular readers know that I’ve been a steady contributor to my 401(k) at every job I’ve had since I started work professionally about 12 years ago.

Consistent contributions (even through employer match cut-backs and the recent Great Recession) an good plans have allowed me to watch my savings cross the 6-figure mark at the end of last year. But I realize now how lucky I have been to have had such good options in my 401(k) plans to date.

I realize this because I’ve hit a problem with my current plan, and I bet I’m not alone.

The problem

The problem is this: The investment options in my current employer 401k plan stink.

The plan is administered through a well known insurance company with a catchy jingle and fees that top the range of what is considered average for the funds.

I’m a big believer in low fees. Research has shown that most portfolios have a greater chance of outperforming their peers and the benchmarks averages when they invest in lower cost mutual funds or ETFs. It’s just common sense that when all other things are equal, the fund that charges less with leave you with more money in the end.

Of course, some funds out perform their peers and have higher fees. That’s OK too, but the key is that you’re getting a demonstrated track record of out performance for that extra cost.

My problem is that few of the funds in my 401(k) out perform their peers, but still have higher fees.

So, I have a few options and if you’re in the same situation, you do too!

Retirement plan options

The 3 basic retirement plans available to me in my career are:

Traditional IRA
Roth IRA
Employer’s (lousy) 401(k) plan

Each one has benefits and drawbacks, but the Traditional IRA and Roth IRA are slightly different beasts given that the Roth contributions are after tax, while the tradition are pre tax.

I don’t want to roll over my 401(k) to a Roth, because I don’t want to pay the taxes on the conversion. I’m considering opening up a Roth in addition to pre-tax retirement plans in the future, but the Roth is not being considered by me at this time.

That leaves the Traditional IRA and the crappy 401(k).

Rolling over my 401(k) to a traditional IRA seemed liked a no brainer – I would be able to invest in a wider range of funds, stocks and bonds – but then I realized this startling discrepancy:

The contribution limit for a traditional IRA is only $5,000!

By contrast, the limit on a company sponsored 401(k) plan is a whopping $16,500!

With all the talk of financial reform in Washington D.C. over the past two years, and all the discussion about ending the 401(k) plan in favor of another social security style plan, I wish Congress would just make the contribution limit of the IRA as large as the 401(k)!

The total solution

Well, this left me with the choice of saving less in my IRA but paying less fees, or paying higher fees and potentially saving more by using my 401(k).

After much pondering, and poking around the Internet (to no avail), my solution is this…

I will rollover my old 401(k) to a new IRA. I will make the maximum contributions per year ($5,000) to that plan and any remainder I will contribute to the least offensive options in my 401(k).

For example, I’m used to contributing about $7,000 a year to retirement. I will be splitting up that amount like so:

$5,000 to funds in my IRA
$2,000 to funds in my 401(k)

I call this the “total solution” because it reminds me to consider the total holding in these two accounts as my portfolio – I have 1 unified portfolio instead of 2 portfolios.

The trick is determining which holding to keep in my 401(k) considering that an future increase in contributions will need to go into those funds. I’m tempted to hold my bond allocations in my 401(k). That way I will automatically increase my bond exposure over time as my contributions increase and I get closer to retirement age.

It’s not an ideal solution by far, but it’s the best I could come up with and I couldn’t find a better one. If you have any suggestions, I would gladly welcome them!

America Saves Week 2011 Is Here!

Joe — Sun, 20 Feb 2011 16:00:48 +0000

February 20th is the start of what could be a beautiful thing. America Saves Week begins today, and it’s a week-long initiative to bring attention to the pitiful personal savings rate of Americans in general. The purpose is to get Americans to shift their focus from spending to saving, investing and building wealth instead of debt.

To help celebrate and take part (though this site is not officially partnered in anyway), Simple Debt-Free Finance will be posting articles and links about saving and building wealth all week long.

America Saves Week is organized by AmericaSaves.org and they have quite a lot of media for Employers, Educators, Individuals and more! So what are you waiting for? It’s free, and can change your life, or at least your financial situation.

Take action today!

Don’t Confuse Frugal With Cheap.

Joe — Wed, 16 Feb 2011 14:54:49 +0000

I write a lot about saving money wherever possible, and being sole source of income for my family of 5 makes me more inclined to read articles about saving than I might otherwise be. But sometimes I come across the ridiculous extremes of frugality and I like to share those with my readers too. Take for example, this Yahoo! finance article.

Can you be too cheap?

The basic premise of the article is YES. However, I would like to point out that there is a difference between being frugal and being cheap.

The difference between frugal and cheap.

In a nutshell, the difference is this:

Being frugal means always being conscious of where your money goes and how much you’re spending. It means never paying full price for what you can get on sale. It means working at saving – clipping coupons, delaying gratification and living simply.
Being cheap by contrast is frugality taken to the extreme. It can mean failing to replace parts on your car and risking future injury to save a few (hundred) bucks today. It means always buying the least expense item regardless of quality even if that item precipitates greater spending in the future by means of repair or upkeep.

So, can you be too frugal? I don’t know. I suppose that’s open to debate, but here are 5 ways you can be too cheap – and it will cost you!

1. Neglecting Basic Maintenance

This, to me, is a no-brainer yet we’ve all been tempted and probably engaged in this sort of neglect at some point in our lives. Deciding not to spend that $100 on servicing your car can end up costing you $1,000 down the road. The trick of course is knowing which services are truly necessary and which are not. Another point to consider is when the maintenance is required. For example, no one would say that changing the oil in your car is unnecessary, but it may not need to changed every 3,000 mile either. Many cars will go for 6,000 or even 7,500 miles but many people are still having it done every 3,000. Check your car manual – you might be able to save money without risking early breakdown!

2. Doing Your Own Taxes

I honestly don’t see this as something that will cost you money. With the financial software available these days and the guarantee of help should the IRS audit you, there’s really little reason for most people to use a tax professional. The glaring exception to this is if you own your own business, or have a complicated tax situation. However, most people have a straightforward W-2, standard deduction type of tax return. I say, save the money and do it yourself.

3. Borrowing From Your Retirement

I agree that this is a bad idea in almost all cases, but is it really a “cheap” thing to do? I mean do cheap people have much in their retirement savings to dip into, and if they do are they really likely to do it?

For what it’s worth, the article does list some helpful means of alternative income:

• Pick up a side job or do some freelance work to make cash.

• Sell some of your belongings that you don’t need.

• Stop (or cutdown on) eating out and buying coffee or soda.

• Look for ways to cut costs in your regular expenses, such as dropping/reducing your cable and cell phone plans.

4. Not Saving Anything

I’d agree with this one 100%. It’s a bad idea, it will cost you in the long run and it’s something a “cheap person” might do. Especially if there are fees associated with the saving, like investing.

5. Skimping on Food

I suppose the true cost of buying the cheapest food is the cost to your overall health and well being. That of course translates to higher health costs down the road, but that to me is of secondary concern. Who wants to feel run-down and sick all the time? Yet I still here people complain about the price of food and buy the cheapest available product without consideration to health.

Final thoughts.

Saving money is great, but it is possible to go too far. In this blogger’s opinion, it’s better to be frugal than cheap.

Pay Off Your Credit Card Debt Faster With TracFone – Tracfone promo codes for December.

Joe — Fri, 03 Dec 2010 13:25:14 +0000

One of the first things anyone looking to pay down their credit card debt should do is cut expenses. By spending less on the things you buy, you can take that savings and redirect it toward your credit card balance and accelerate your pay off. It’s what my wife and I did when we were paying down our debt.

One of those expenses we slashed was our cell phone bill. It was simply unnecessary for us at the time and it’s the number one item on CreditCards.com’s list of 10 Expenses to Cut to Help Pay Off Credit Card Debt!

To be clear, when I say unnecessary, I don’t mean cell phones in general. I mean spending $80+ per month for minutes or features you don’t use. I mean being locked into a multi-year contract that is costly to cancel before the end date.

Tracfone doesn’t have high monthly fees, and there’s no contract.

It’s simply paying for the service you want and the service you use. It saved us over $70 a month, and we haven’t looked back.

Here are two TracFone promotional codes just for the month of December to help you save even more money.

20 bonus minutes when adding 120 minutes or more of airtime.

Just like it sounds, if you’re adding 120 minutes or more, you get an additional 20 minutes free when you use the promo code 59361. Valid December, 2010.

40 bonus minutes when adding 200 minutes or more of airtime.

If you’re adding 200 or minutes of airtime to your TracFone, then you get an additional 40 minutes free when you use the promo code 80403. Valid December, 2010.

Where Should You Keep Your Emergency Fund?

Joe — Mon, 20 Sep 2010 13:10:59 +0000

Editor’s Note: This is a guest post from Debbie Dragon..

Taking control of your finances begins with having access to an emergency fund. People who have adequate money in an emergency fund aren’t forced to turn to credit cards when an unexpected expense pops up. The typical rule of thumb, or the expert recommended amount to keep in an emergency fund is three to six months of your living expenses.

As you’re building your emergency fund or if you’ve already saved the money, the next thing to consider is where you should keep your emergency fund. It needs to be extremely liquid, meaning you can access it whenever you need it, but in the meantime it should be growing and earning interest so you won’t want to stick it under your mattress or in a hole you dig in the yard!

Here are things to consider when deciding where to keep your emergency fund:

Risk Free – don’t invest your emergency fund in anything that could lose value, like mutual funds or the stock market.

High Interest – since you hope you won’t need to withdraw money from your emergency fund frequently, you want to save the money in an account which will pay you interest for leaving the cash there. Look for the highest interest rate you can get, even a half of a percentage point makes a difference over the long term!

FDIC Insured – if you stash cash under your mattress or somewhere in your home, not only do you lose out on interest earnings, but you’re out of luck if your house burns down or gets robbed. Use an FDIC insured bank to make sure your money is protected.

Accessible – emergencies by nature are normally events which happen unexpectedly. If you have your emergency money tied up in investments which require time to mature before you can access them, it’s not going to do you much good, is it?

Certificate of Deposits

If you have a large amount of money reserved for your emergency fund, you might consider CD laddering, provided there is a CD which matures every month. You don’t want to pay penalties or early withdrawal fees to access your money when you need it.

Another way to use Certificate of Deposit products to help grow your emergency fund is to place part of your savings in CD’s and keep the rest in a more easily accessible savings account.

High Interest Savings Accounts

The majority of people should keep their emergency cash in a high interest savings account. The money is risk free, accessible at a moment’s notice, FDIC insured and will pay you interest for keeping the money in the account.

Take time to compare savings account rates among several banks before choosing. The higher the interest rate you can find, the better! Also consider bank fees, the ability to link your savings account with your checking account, whether or not you want an ATM card for the savings account, and the quality of customer service offered before choosing a bank.

Debbie Dragon is a freelance writer for DepositAccounts.com, where you can compare savings account rates from dozens of banks in one place.

I Saved $9.33 on Gas With My AdvantEdge Card!

Joe — Fri, 03 Sep 2010 12:48:11 +0000

If you live in the Northeast, and have a Price Chopper and Sunoco nearby you might want to look into this…

It’s the Price Chopper Sunoco gas promotion, and here’s how it works.

You use your Price Chopper AdvantEdge card (free to apply for) when buying groceries at any Price Chopper store, and you get money off your gas purchase at Sunoco stations.

Here are the details.

I saved $0.60 per gallon last week!

To qualify for a 10¢ per gallon savings on your next fill-up, you must spend $50 using your Price Chopper AdvantEdge Card at a participating Price Chopper locations.
Only purchases made at registers where the Price Chopper AdvantEdge Card is scanned are eligible.
Offer is valid only at select Price Chopper and Sunoco locations.
The promotion is valid for a limited time and may end or be modified at any time without prior notice. Fuel AdvantEdge discounts expire 2 months after the last day of the month in which they’re earned. Discount totals and expiration dates will appear on your Price Chopper receipts.
Discounts will be tracked electronically on your Price Chopper AdvantEdge card. You must use your “wallet size” AdvantEdge Card at participating Sunoco locations to redeem discounts.

click here for official Fuel AdvantEdge rules

Discounts are only good for one purchase, and expire at the end of each month, but my wife and I usually gas up the minivan at the end of the month and save quite a bit. I saved $9.33 last Monday just from the groceries we buy every month!

Unfortunately for those not in the northeast U.S., you don’t have Price Chopper stores near you, but you may be able to find similar deals. I’m sure that the program would discontinue if gas prices shot up to pre-recession levels again, but it’s a nice deal while it lasts!

How Much Does Unplugging Appliances Really Save ?

Joe — Mon, 07 Jun 2010 15:27:46 +0000

Are energy vampires really worth the time to kill?

Back when energy prices were headed skyward in 2008, it was common to see articles recommending that you unplug appliances when not in use . Often times these articles referred to electronic devices that creatively called “energy vampires.”

The term energy vampire certainly paints a picture with a direct message, but is there really any truth to the idea or is it just sensational for the sake of being sensational?

Or maybe it’s groupthink?

I don’t know. All I know is it made sense to me at the time, and then the save money by saving energy stories dissipated as bigger stories took precedence – i.e. The “Great Recession”. But I recently heard a heavy dose of promos for a nightly news “in-depth investigation” on the topic that got me wondering again…

At first I thought it odd that the local news station was doing a story on it at this time when energy prices are still much lower than 2008 levels, but then I got wondering if there was any truth to the belief that devices like VCRs and televisions really cost that much money staying plugged in when not in use.

I pursued a similar question a few years back when I wondered if LED Christmas Lights Are Really more Cost Effective? This time though, I’m busy. I don’t feel like doing the math, and quite frankly I don’t have the time.

So I did some googling and found that Cecil Adams was nice enough to have done it for me at The Straight Dope. Thanks Cecil!

The crux of the issue lies in the fact that the real energy hogs are the ones you can’t unplug between uses, like your refrigerator. So most people focus on computers, DVD payers, televisions and VCRs. And Cecil shows that those devices use something on the order of $10 a year.

Is that really worth all the plugging and unplugging? Not to me it isn’t.

TracFone Promo Codes For June 2010.

Joe — Tue, 01 Jun 2010 12:46:37 +0000

As this AP article points out, Wireless users opt for service without commitment:

This year, customers have been making a big shift away from two-year contracts toward “prepaid” cell phone service, which often costs less and does not require contracts. This is happening even though contracts are needed to get popular phones such as the iPhone and the Droid.

I’m one of those who switched, although I did it back in 2004. I used to have a contract with one of the big name wireless companies for $80 per month , but I hardly used it. I just don’t talk much on the phone, but I needed something for emergency calls or to be able to tell my wife I was stuck in traffic and would be home late. That’s why I went with Tracfone. The pay as you go wireless support wasn’t widespread back then, but now there are about half a dozen prepaid providers.

Tracfone has been great. When my $80 contract ended, I didn’t renew. Instead, I bought a Tracfone. Now I still have more service than I use in a month, but I only have spend about $7 per month.

With the extra money we saved on cell phone service and other things we didn’t need, my wife and I were able to get ourselves out of credit card debt much sooner.

If you’re thinking of making the switch or just need to buy more airtime, here are two TracFone promotional codes just for the month of May to help you save even more money.

20 bonus minutes when adding 120 minutes or more of airtime.

Just like it sounds, if you’re adding 120 minutes or more, you get an additional 30 minutes free when you use the promo code 56910. Valid June 1st – 30th, 2010.

40 bonus minutes when adding 200 minutes or more of airtime.

If you’re adding 200 or minutes of airtime to your TracFone, then you get an additional 40 minutes free when you use the promo code 36008. Valid June 1st – 30th, 2010.

Why Do You Bank Online?

Joe — Mon, 24 May 2010 16:10:58 +0000

I stumbled on this article from BankRate: Should you bank online? and it got me thinking. Why do the people who bank online do it?

The author of the article makes some good points about why customers prefer online banking, but the one I would have thought was the main reason is not mentioned. He covers topics like Convenience vs. service, and the flexibility of banking online. He also states that this is the first time in history that “more consumers prefer to do their banking online rather than at a branch, an ATM or over the phone.”

But here’s the part I’m not sure I buy:

“This marks a watershed change,” says Nessa Feddis, senior counsel for the bankers’ trade group. “It tells us that … more consumers prefer the speed and convenience of conducting their banking transactions on the Internet.”

I guess it depends on how you define “banking online.” For example, if they’re looking at only brick-and-mortar banks that offer online banking along with physical branches, ATMs and phone banking, then I think you can conclude that those people prefer the speed and convenience.

But if you’re also counting customers of Internet only banks, then I think you need to consider the interest rates those banks pay as being a factor. I know that’s the main reason I use Internet banking. How about you?

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Can you be too cheap?

1. Neglecting Basic Maintenance

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Final thoughts.

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20 bonus minutes when adding 120 minutes or more of airtime.

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20 bonus minutes when adding 120 minutes or more of airtime.

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Why Do You Bank Online?

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