Simple Debt-Free Finance » Tips

3 Ways To Negotiate a Credit Card Debt Settlement Yourself.

Joe — Wed, 11 Apr 2012 02:25:55 +0000

If you’re one of the millions of credit card holders who has found themselves buried in credit card debt with a balance you can’t hope to pay down, then you may be wondering if you can Negotiate Your Credit Card settlement yourself. Well, it is possible to do, but it’s not easy.

3 Ways To Negotiate a Credit Card Debt Settlement Yourself.

The first thing you need to consider is what kind of arrangement you are going to seek. Let’s be honest, you’d like your credit card company to forgive all your debt and pretend it never happened, but short of bankruptcy, that isn’t likely to happen.

Once you’ve accepted the reality that you will need to pay something, you need to determine what that something will be. Here are 3 possible debt payment solutions to offer to your credit card company when you make the call.

I. Lump-sum settlement.

This is by far the easiest to understand and to sell to your credit card company, but it’s often the hardest to carry out, because you need a large sum of money available.

Since most credit card issuers aren’t going to negotiate until you are behind, one strategy is to stop making payments to the credit card company and put that money (and as much extra as you can afford) into a savings account for a few months.

This is what many debt settlement companies do for you, or at least it’s what they say they will do for you. In many cases, they hold the money and let the credit card company come after you for the full debt owed anyway. It’s a big reason why debt settlement is not a good idea in many cases.

If you have access to a chunk of money, they you can make an offer to your credit card issuer for a 1 time payment that is less than the full amount you owe.

WARNING: This technique will likely hurt your credit score, but then again so will having a high debt balance and not paying it off…

II. Workout arrangement.

This is a much easier option to carry out than the lump sum. The Workout arrangement is when the bank agrees to freeze your interest payments and late fees while you payback your balance. This is also the most ethical solution in my opinion, because you’re telling the credit card company that you will meet your obligations and pay back what you owe, as long as they agree to stop pushing you back under while you do it.

WARNING: You will most likely no longer be able to use your credit card, since the bank will probably lower your limit. This is a good thing in the long term though, since it will keep you from racking up even more debt. However, the lower credit limit will increase your debt-to-income ratio, and lower your credit score.

III. A Forbearance Program.

This one is probably the easiest solution to sell to the credit card company, but not the best for your bottom line. A forbearance program is an agreement by the bank to pause your payments and interest fees while you get your finances back on track. This is like taking a timeout to gather your resources for the next play.

The next play though is usually getting back on a payment plan in which you agree to pay the full amount owed and any interest and late fees accrued – forbearance is not forgiveness.

Final thoughts.

Whichever solution you choose, keep in mind that these are tough times for everyone – credit card companies included. They can’t get blood from a stone and they know that. Credit card holders still have a lot of leverage and everything is negotiable. Job loss and negative home equity have put the squeeze on banks trying to collect full payment.

You can use one of the debt solutions from above as a starting point, then see what else you get bargain down in the process. For example, you might get the bank to forgive all late fees and interest fees and give you a forbearance if you agree to pay the full principal. It all depends on your situation, and is up to the individual creditor.

Regardless of which solution to choose, be sure to get your credit card issuer’s agreement in writing before you send them any money.

Also, be sure to read How to Negotiate Your Credit Card Debt for more detail on the actual process behind making the call.

…and for your own sake, stop living beyond your means or you’ll find yourself back in the same place further down the road. It’s the number 1 reason why Debt Settlement And Loan Consolidation Don’t Work.

How To Cut The Cable Cord And Lower Your Tv Bill (In 3 Easy Steps).

Joe — Tue, 03 Apr 2012 18:09:37 +0000

An increasing number of people are wondering how to lower their t.v. cable bill or even how to cut the cable cord altogether. It’s no mystery why. The average American family with cable t.v. is paying over $900 a year for the service.

What would you do with an extra $900 in your pocket this year?

Aside from saving money, you may find you have more free time as well. Cable television feeds the viewer a constant stream of programming. This leads many to plan their lives around when their favorite shows are on, and spend the remainder of their time channel surfing in the hopes of finding something to fill the void.

Cutting the cord changes your life. It does so because alternative providers don’t provide content in the same way – they provide it more like a menu of available shows. Not quite a la carte, but closer than cable. It’s a bit of a mind shift, but it puts you in control of your life again.

Since cutting the cord, my wife and I find we watch tv when we want, and when there is a show we’re interested in. The rest of the time we used to spend channel surfing we now spend talking, reading or just plain living.

I know many others who report a similar phenomenon. I hope that you can experience it too.

Now, without further ado, here’s how to cut the cord on cable t.v., save hundreds of dollars doing it and learn to live again.

Step 1. Determine your “must see” t.v. shows.

Every cable television customer I’ve ever spoken with admits they only watch a handful of channels or shows, yet pay for a tiered package of hundreds of channels encompassing thousands of shows. Most of their television watching time amounts to simple channel surfing and complaining that “there’s nothing on”.

Alternative television options don’t work like that. Aside from the Dish Network, or DirecTV, you don’t get a one-stop provider that will give you everything you get with cable t.v.. Of course, going with one of those other content providers won’t free you from large monthly bills either.

Since the point of this operation is to replace your existing cable with alternative providers but at a lower price, we need a list of shows you consistently watch. Mark the “must see” shows in your list, and start with those.

Step 2. Find out where you can watch your shows online.

Once you have your list of shows, it’s time to figure out where you can watch them. Netflix and Hulu are 2 wildly popular streaming content providers. Amazon is another. The trouble is, none of them has all the shows available. Many shows are only available on one or the other – not all.

You may be lucky and find that everything you watch is available through Netflix, or you may be like my wife and I and realize that most of what you watch is on Netflix, but one or two of your “must see”s are only on Hulu.

For a more in depth look at various providers, read: Where to watch online content streamed to you television.

Step 3. Determine how to stream online content to your t.v..

Once you have your list of shows and verified they are available from alternative sources, you’re ready to proceed.

In this 3rd and final step, you need to determine what kinds of hardware, if any, you will need to make the magic happen.

Unfortunately there’s really quite a bit of information to impart for this step, and I don’t want this post to go on forever.

To that end, I have shared that information here: How to stream online content to your t.v..

Good luck and happy cord cutting!

A word of caution

I feel I should offer a few words of caution as an addendum to this post, to help you avoid being burned one last time by your cable provider. This has happened to some cord cutters – don’t let it happen to you.

Some cable providers charge less if you bundle your cable and internet services together and will charge a higher rate for just internet, so be sure of your provider’s policies before you drop the cable t.v. service.

If you are unlucky enough to have such a cable provider, you can find other high speed internet providers in your area. As a rule of thumb, you want at least 5mbps download speeds, but higher is better.

How To Stream Online Content To Your T.V..

Joe — Thu, 29 Mar 2012 20:03:10 +0000

If you’re like me and millions of other Americans, you’re tired of paying close to $900 a year for cable television. In this post I will discuss how to watch streaming t.v. shows on your television after you’ve learned where to watch t.v. shows without cable service.

Streaming programs to your television.

The first thing you need to determine is whether you can stream programs straight to your television, or if you need an additional device to get the stream to your television.

Many HDTVs sold in the few years are “smart t.v.’s” -televisions that connect to the internet, so it may be as simple as plugging the internet cable into your television.

Even if you have a traditional t.v., you can still watch full episodes of your favorite shows from the internet on your t.v., however, if your television does not have an HDMI input you will have a more difficult time.

For the remainder of this post, I will focus on watching streaming t.v. shows on a non-Internet ready television.

Pick a device.

There are a host of devices that connect to the internet and/or home network and let you stream online content to your television.

Inexpensive Blue-ray dvd players, like the Sony BDP-S580 Blu-ray Disc Player (which currently retails for $112) provide internet access to Netflix , YouTube , HuluPlus , Pandora , and more. That’s just one example, there are many internet ready Blue-ray players on the market.

Some are wi-fi ready, and others aren’t. Just be sure that if you’re going to buy a new player for streaming t.v. content that you get one that suits your situation. In other words, don’t get a player that’s not wi-fi ready when you have no means of getting an internet cable to connect to it in your living room.

Besides the internet enabled Blue-ray players, there are other HD streaming media player devices like The Boxee Box by D-Link and the many flavors of Roku. And of course, there’s the Apple TV for all you mac lovers out there.

I wasn’t sure what to get or even if this whole experiment to cut cable was going to work when I set out to try it, and I didn’t want to drop $150 or more on a device I wasn’t going to use. Instead, I went with the Roku 2 HD Streaming Player, for $69. I had a $50 Amazon gift card from Christmas, so I felt a little better about the purchase. Even so, $69 is a small price to pay to free yourself from the cable beast.

I have to say that I am very impressed with the Roku. It’s tiny -I mean “fit in the palm of your hand” tiny. It’s so light weight that the HDMI cable weighs more! But the performance is quite good. Not as good as the Sony Blue-ray player we have, but that’s a hard line into the internet and just a better device overall. This is also due to this Roku being the 720 HD version. If I was going to rely solely on only my Roku for streaming content, I’d probably upgrade to the Roku XD 1080p Streaming Player.

But I use the Blue-ray as my primary Netflix and Hulu Plus device. I use the Roku for everything else, like PlayOn.

If the device you’ve chosen is wireless, as I suspect is the situation for most people these days, you may need to upgrade your network to get the best quality and performance.

How to stream online content to your t.v..

Television programming from the internet can be sent over your wireless network to your t.v. or through a traditional Ethernet cable. If your device or television accepts direct connection via Ethernet cable, then it’s as simple as plugging it in. However, if your device requires wireless internet then you will need a router.

If you already have a wireless home network you may be ahead of the game, but if it is more than a few years old you may need to upgrade to get the best performance. This was the situation I was in. My home network router was about 6 years old and provided what I needed for basic internet use, but it just could not keep up with streaming HD video.

Here are the Best 5 wireless routers recommended by CNET Reviews:

I went with the ASUS because it was on sale for $119 and I found a promo code to drop it to $109, but that was a rare alignment of sale and promo code. It’s also a dead sexy device.

Spending over $100 on a new networking device seemed like a lot since we’re trying to cut our cable bill and lower expenses, but once we realized that it’s a 1 time expense and we will be saving that much in 3 months without having a cable t.v. bill, it quickly became a justified expense.

Streaming live t.v..

Streaming live t.v. shows from the internet can be done with additional services, like PlayOn.tv. Basically, services like PlayOn run on a computer in your home that is connected to your network, and takes live shows from the internet and streams them to your network device like Roku or Boxee to your t.v.. Live streaming is most important with sports. Most other shows can be watched only a week later over the internet, and would behave like watching a show over DVR.

It’s also important to note that some television shows are not available on Netflix, or Hulu Plus. Some are only available on Hulu basic or on the network website. CBS shows are a good example of this. One of my personal favorites is NCIS. You cannot watch full episodes of NCIS anywhere except the CBS.com website. I have no idea why CBS doesn’t license the show to Hulu, but they don’t. So the only way to watch NCIS (and some other current CBS shows) is to use a service like PlayOn, or connect your pc directly to you television.

Final thoughts.

Cutting the cord is a trade off. you’re swapping some channels and options for a lower monthly bill, or possible no monthly bill. Much of the costs described in this post are 1 time expenses, unlike your cable bill.

Once you cut the cord, and purchase the necessary equipment, there are no rental fees, broadcast fees, miscellaneous fees or any of the other hidden charges cable companies love to stick you with.

Just be sure to get your ducks in order before you cut the cord, because getting all your shows in one place is not as simple as it is with cable. Many of the devices and/or hardware can be purchased piecemeal too. You can try Netflix and Hulu Plus for 30-days free. I recommend doing so before you cancel cable. That way you can see if those providers are going to work for you.

Also, keep in mind the minimum internet speeds for movie and television quality:

5 mbps for 720p HD
10 mbps for full 1080p HD
10+ mbps for 3-d HD content

You can check your current internet speed at Speakeasy Speed Test.

Happy cord cutting!

Save Money on Insurance – Skip These Insurance Policies You Don’t Need!

Joe — Tue, 21 Feb 2012 19:04:09 +0000

Fear sells, and nothing is more fearful than the future. Insurance agents have known this for ages, and the most unscrupulous of them will play up the fear factor to the hilt. That’s not to say that all insurance is unnecessary or that all agents are fear mongers. Insurance has a definite purpose – to protect you from the financial risk of some future event that, while unlikely to happen would be financially devastating if it were to happen.

Many insurance policies sold today are simply unnecessary in most cases. Knowing which policies are needed and which aren’t will go along way toward arming yourself with the knowledge needed to protect yourself from less honest agents.

1. Private Mortgage Insurance (PMI).

First up on the hit parade is the onerous PMI. Many homeowners only become aware of this after they buy a home an see their monthly mortgage payment has this extra fee included. PMI has nothing to do with protecting you or your home. It’s insurance for the bank to insure against the possibility that you default on your mortgage.

You didn’t expect the bank to pay for its insurance, did you?

Private Mortgage Insurance is required for loans with less than 20% equity – either a refinance for more than 80% of the value of the home, or a mortgage with less than a 20% down payment.

PMI can only be avoided in the initial opening process of the loan, after you’ve got the loan you have to wait until you have at least 20% equity in the home. This can be due to appreciation in the home’s value, which is unlikely in the current housing market, or by paying down the loan. Homeowners can accelerate this process by making extra payments – just make sure they are principal only payments.

(check out Why A Mortgage Loan Without PMI Is A Bad Idea.)

2. Extended Warranties.

An extended warranty is basically insuring against a breakdown of the product outside what’s covered by the basic warranty. That may mean a breakdown after the basic warranty has expired, or a breakdown of something not covered by the basic warranty.

Unless you’re purchasing a high-ticket item, the warranty is likely to cost almost as much as a total replacement. I paid $115 for my first lawnmower. At the time of check out, the sale clerk tried to upsell me on a 3 year extended warranty. I would “only” cost me 30 bucks a year. That would have been $90 in total – for a $115 lawnmower!

The dirty little secret on most warranties is that they only cover the things that rarely go wrong to begin with. So in most cases, you’re better off playing the odds that it won’t break. This is especially true if you save up the entire purchase price of the item before buying, and don’t buy on credit. Also, waiting for prices to come down helps too. I might be tempted to get the extra warranty on a $5,000 new flat screen television, but a $700 one? Not so much.

But then, the thought of spending so much on a “want” makes my frugal self revolt.

3. Automobile Collision Insurance.

Collision insurance is meant to cover the cost of repairs if your vehicle is involved in an accident. This isn’t necessarily useless. It depends on your financial situation and your car. I drive old cars that I can either pay for entirely or pay for mostly, leaving me with a lower loan amount.

Banks typically require you to carry collision insurance, so if you have a loan you will likely get stuck with this bill. But after the loan is paid off, the car is likely worth less that the insurance premiums you’re paying (are darn close)! In which case, you’d be better off putting that money into a savings account for car repairs (should they arise) or a new(er) car.

4. Rental Car Insurance.

People buy this?

Apparently they do, but they probably shouldn’t. Most people rarely need a rental car while their car is in for repairs, and if they do the cost is far cheaper than what they would pay in premiums. Personally, the few times my car has been in the shop long enough to need alternative transportation, the shop has provided either a loaner car or paid for the rental car.

5. Flight Insurance.

I’m not sure what this is meant to cover. I gather it’s meant pay your survivors should you die in a plane crash, but your life insurance would do that anyway.

6. Water Line Coverage.

Ah, now we’re getting to the really fringe insurance types.

This policy would cover the repair costs of the water line that runs from the street to your house. The likelihood that this would ever become a problem is slim – especially in new neighborhoods and given the relatively short distance covered in most suburban neighborhoods.

7. Life Insurance for Children

Life insurance is meant to cover the income of the insured in the event that they die prematurely. Children don’t have dependents to worry about. Some agents try to sell this kind of insurance as an investment for the child’s future. This gets to the Term Life Insurance vs. Whole (or Universal) Life Insurance debate. (see Life Insurance: What kind should I buy?) The same is true in this case – skip the whole life policy and invest the money that would go toward a premium in a Roth IRA for the child. (See Secret # 2. Make Your Grandchild a TAX-FREE Millionaire!) It will perform better with less fees and he’ll have access to the contribution amounts for his first home, while the rest will continue to snowball toward retirement.

8. Credit Card Loss Insurance.

This is meant to cover your expenses if someone steals your card or makes fraudulent purchases. It’s a complete waste because you’re only liable up to $50 by law, and most credit card companies wave that for good customers.

9. Mortgage Life Insurance.

Mortgage life insurance pays off your house in the event of your death. This is useless, since it’s the purpose of Life insurance to begin with , only life insurance will pay off the mortgage, and your children’s college expense and anything else you need.

10. Unemployment Insurance.

With government unemployment benefits lasting over a year, you’re far better off building an emergency savings account and using that to supplement the unemployment checks. If you can make Unemployment Insurance premium payments, you can make contributions to an emergency fund.

Check out the inspiration for this article and 5 more unnecessary Insurance Policies.

Tax Time: Kiplinger’s “Do It Yourself Pay Raise” (Video).

Joe — Mon, 20 Feb 2012 15:11:58 +0000

Want a little more more in your paycheck every month? Get a big, fat tax refund every year?

Here’s how to turn that refund into a raise:

Want to Build Wealth, and be Secure? Focus on Learning Instead of Earning!

Joe — Wed, 18 Jan 2012 17:33:34 +0000

I just finished reading Robert Kiyosaki’s book, Rich Dad’s Increase Your Financial I.Q.: Get Smarter with Your Money and the one major takeaway is that too many people never realize their true financial potential because the get in their own way! Many people focus on earning more money when they should be focuses their time and energy on learning and increasing their money I.Q..

* Note: Kiyosaki discusses 5 aspects of Financial I.Q. in his book, but I’m just going to focus on this one, general concept here.

The learning discussed in the book is not a formal education. In fact, that’s one of the mistakes that many people make – amassing huge amounts of debt going to college in the hopes of “finding a good job” and their place on the financial treadmill, only for some it’s more like a hamster wheel.

So what does “focus on learning” mean if not the traditional, middle class mantra “go to college to get a good job”?

It means taking risks and chances while you’re young, and always learning from your mistakes as well as your successes. People come into money all the time, sometimes mass amounts of it only to lose it all later. Think of lottery winners, famous athletes and performing artists. Suddenly rich, then suddenly broke. Why? Because they didn’t increase their 2nd financial I.Q. after mastering the 1st. They simply did what they loved doing and fell into their riches, but never learned how to manage and protect their wealth.

The first two financial I.Q.’s in the book are :

earning more money.
learning how to protect that money.

In the example of the star athlete or lottery winner, they mastered I.Q. #1 but failed horribly at I.Q. #2 – protecting their money.

Protection can mean many different things, and is usually referred to as “security” by many people. They may want to be secure in the knowledge that their savings are safe from loss, or maybe they want to protect their savings and assets from legal action. Whatever meaning you take, once you’ve earned it you must get educated on how to keep it or risk losing it all.

But even losing it all isn’t the end.

There are many well known moguls, like Donald Trump, who have built vast financial empires and lost it all only to come roaring back again. Why? Because they learned from their experience and were not afraid to fail.

” Those who cannot remember the past are condemned to repeat it.”
-George Santayana

If you do not learn from your mistakes, you will keep making them and make little or no progress in life.

I’ve always thought it’s important to learn from your own mistakes, but it’s also important to learn from other people’s mistakes as well.

Here are a few resources to help boost your financial I.Q.:

Tips to avoid losing money to these common investing mistakes .
Educate yourself at tax time to avoid common tax mistakes and save more money.
Get educated on credit cards so you can know how bad credit mistakes can be and avoid even basic credit card mistakes that cost thousands.
And if nothing else, learn from other people and avoid even basic money mistakes whenever you can.

8 Tips to Reduce Your Debt This Holiday Season.

Joe — Thu, 22 Dec 2011 02:32:00 +0000

The Holiday Season is the busiest time of year, full of family and friends, good food – and spending. Between the parties, travel to be with family, and gift-giving, it’s practically inevitable you’ll be dishing out a lot of dough. But you don’t have to go into debt during the Holidays that leaves you financially hungover in January and behind for the rest of next year. Plan ahead to minimize your debt, or better yet, not rack up any at all! Avoid the debt collectors by following these 8 simple tips to keep your Holiday spending on track:

Get on a Budget – Start the season out right by planning how much you can reasonably afford to spend and limit yourself to that, no ifs, ands, or buts. This means you’re going to have to budget for those unexpected holiday expenses that tend to pop up.
Treat All of Your Expenditures Like Cash – Don’t set yourself up for failure by walking into the glitzy shopping mall with three credit cards and no idea of what you plan to buy. Preferably pay in cash, but if you use a credit card, treat it like cash – plan to pay off the balance at the end of the month to avoid incurring interest fees.
Don’t Use the Store Retail Cards – These may be tempting, but don’t fall into the habit of applying for store credit cards simply for the 15% off coupon they’ll give you. Each time you apply for one of these it will hit your credit report and can make you look desperate for credit lines. Plus, these cards generally carry high interest rates – often at percentages in the 20s! Steer clear of this shiny Holiday shopping lure.
Be Creative With Your Gifts – Think from the heart instead from the wallet for a change this season. Are you an aspiring artist? Do you have the best gingerbread recipe in town? Consider something homemade, sentimental, for a gift. Chances are you’ll save money and your loved one will appreciate the gift all the more for it!

If you’re like most Americans, you will manage to rack up a measure of debt during the Holidays despite your best efforts. Don’t despair; you can still right the ship financially without spending the whole year trying to pay it off. It will just take a little planning:

Set a Definite Payoff Date – Try to put a plan in place right away to pay your debt off as soon as possible. Maybe it’s March 31^st, the end of the first quarter, or maybe you want the debt gone by the time the kids are off school for the summer. Stick to your plan and know exactly how you will pay it off in order to make all you financial decisions fall in line.
Scrimp and Sacrifice Where You Can – Are you getting a Starbucks every morning before work? Make coffee at home. Are you eating lunches out during the work day? Bring a sack lunch. Cut down on dining out, entertainment, and the cable bill – wherever you can. You probably received some gift cards during the Holidays, so make good use of those.
Pay off Your Debts in a Smart Order – Plan to pay off your cards with the highest interest first, making the maximum payment you can afford on those and just the minimum payments on the others. Work your way down the line with your cards so you can avoid paying high interest rates if possible.
Plan for Next Year’s Holiday Season – It’s okay if you take advantage of post-Holiday sales, so long as you’re doing it for the right reason. That cashmere sweater that went on sale for $90 from $120? Probably not the best choice. But decorations, household goods, and practical things you can save until next season will help you curtail spending next year and stop the revolving cycle of debt.

There’s no way to get around it – you’re going to be spending money during the Holiday season. But if you plan early and spend wisely, you can make sure that this Holiday season is one full of merriment instead of financial misery.

Larry P. Smith & Associates, a Chicago Law Firm, focus on consumer rights protection. If you are having difficulties with bankruptcy, identity theft, debt collection or consumer fraud, request a free case review with Larry P. Smith & Associates.

5 Bad Habits About Money Kids Learn From Their Parents.

Joe — Thu, 15 Dec 2011 17:52:53 +0000

Children learn many things from their parents, and most of it is subliminal. We indirectly learn habits and behaviors by watching our parents, and when we become adults and have children of our own we pass many of those habits, behaviors and beliefs on to them whether we know it or not.

Here are the top 5 bad habits about money children learn from their parents.

#1. Arguing about money.

This is easily the most common habit picked up from parents, since money is often at the center of any disagreement between parents, and many people – parents included – do not know how to have constructive discussions on those disagreements. This can indirectly teach children that money causes problems, and lead them to place an unhealthy emphasis on money to the exclusion of all else.

#2. Spending money you don’t have.

The average college student graduates with $4,000 in credit card debt. Some of that is because the insane cost of college leaves little left for basic living, but few students are leaving home with any understanding of debt and why it should be avoided.

#3. Failing to price compare.

Whether it’s at the local mall or online, parents who don’t shop around for a better price have children who don’t shop around for a better price and that means spending more than you need. This leads to children becoming adults without an appreciation for the value of a dollar. For my part, my children have seen my wife and I Google for coupon codes so often before making a purchase that the first thing they say when they see something in the store they like is, “Let’s Google for a coupon code when we get home and see if we can afford it!”

#4. Spending money and not time with your kids.

Trying to make up for lost time with your children by giving them gifts reinforces materialism and teach kids that “things” are more important than people. Spend money on making memories instead. It’s what kids want, and parents will be creating stronger bonds with their children that help keep them on track later in life. When it comes to kids, it’s better to spend time than money. It’s better still to spend time teaching kids about money.

#5. Handing out money with no strings attached.

It amazes me how many people are angry with the government for bailing out banks, and automotive unions and yet see no problem bailing out their children. Bailouts, whether federal or parental, reinforce bad behavior. It teaches the recipient that there is no risk in making a bad decision, because someone will come in and clean up your mistake.

It creates a lack of responsibility, and an unhealthy dependence on the parent. Parents should consider this: One day you will shuffle off this mortal coil. Think long and hard about where your children will be when you’re no longer their to bail them out.

It’s also bad news for the parent because the money is often being redirected from retirement savings, leaving the parents unable to provide for themselves or their children.

It’s an insidious cycle that needs to be broken. Parents should realize that a little pain early on is worth it if their children learn to stand on their own two feet. Also, it’s much easier if started when the children are younger.

Money in the form of an allowance, tied to chores or goals is a far better reward.

Watch this video for interviews with students about what they’ve learned from their parents about money:

11 Things to Consider When Choosing an Online Bank.

Joe — Sat, 19 Nov 2011 19:32:11 +0000

Do you feel like your money isn’t showing a very impressive rate of return with your bank savings account? If so, perhaps it’s time to explore other options that will provide a better interest rate. The whole purpose of saving is to build a nest egg to put purchase a new home, finance your children’s college education or enjoy a comfortable retirement.

There are two primary factors which account for low interest rates on savings accounts: the relatively low short term interest on short-term borrowing (i.e. the rates bank charge one another for lending money) coupled with high overhead costs and rising expenses associated with brick and mortar locations (e.g. employee salaries, building rent). As per Bankrate.com, an aggregator of rate data, the rates for checking and savings as of August 2011 are as follows:

Traditional Savings and Money Market (MMA): 0.05% APY to 1.00% APY
One year certificate-of-deposit (CD): .8%
Traditional checking with interest: .51%

Online banks that have reduced overhead expenses offer somewhat higher rates. Yet, with so many online banks in business, how do you know which one is best for your needs? Below we list 11 considerations when choosing an online bank.

Review the bank’s Veribanc rating which is based on six factors, commonly referred to by the acronym CAMELS: A: Capital reserves; Asset quality; Management experience; Earnings-to-debt ratio; Liquidity; and Sensitivity to market fluctuations. The best banks will have a green rating and a minimum of three stars.
Compare the rates you will earn on deposits. As noted, because online banks have reduced overhead costs, they are able to offer higher rates than traditional banks. However, be aware of “teaser rates” that will apply to only a part of your balance.
Make sure the bank is FDIC insured, meaning that your money is protected should the bank ever fail. FDIC insurance is backed by the “full faith and credit” of the Federal Reserve.
Does the bank offer competitive rates? Use a comparison site such as Google Advisor to compare rates offered by different banks.
Find out how long the bank has been in business. The longer the better since that is an indication that the bank has survived periods of economic fluctuation.
Find out if the bank charges monthly service fees, whether you are required to maintain a minimum balance and what happens should you fall below this minimum requirement.
Ask the procedure for deposits. Because you will not be able to visit a branch, ask how long it takes deposited checks to clear.
Determine how many withdrawals you may make per month. Some banks impose limits on this that you may not feel comfortable with.
Check the level of security. If you are doing all of your banking online, make sure the bank has ample security precautions in place, such as encrypted servers. Ideally, there will also be an alert system in place that notifies you of transactions over a certain amount.
Choose a bank with a strong ATM network. Some online banks have a network of ATMs that you may use with no fee. For those that doesn’t make sure that you can be reimbursed for out-of-network transactions on the ATMs of other banks. This is important since some banks charge as much as $5 for non-account holders.
Consider whether you will need paper checks. Recently, ING Direct began offering paper checkbooks to their customers. Prior to this, bank customers would have to order checks singly that were already filled out with respect to payee and then wait for delivery by regular mail. If you need to pay your rent or other services by check, it is best to choose an online bank that offers checkbooks.

This is a guest post by Ashyia Hill. Ashyia is a social media advocate with CreditDonkey, a credit card comparison website. Read her team’s latest article on preparing for the unexpected with an emergency fund.

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.

Who are The Rich in America Today? Introducing The Frugal Rich.

Joe — Wed, 07 Sep 2011 17:51:39 +0000

Who are The Rich in America today?

Most of the wealthy in America are 1st generation wealthy, meaning they earned their wealth and didn’t inherit it. So who are The Rich? They are mostly entrepreneurs and small business owners.

According to Thomas Stanley and William Danko, “Wealth is what you accumulate, not what you spend.”

Stanley and Danko are the authors of the fascinating book, The Millionaire Next Door (Surprising Secrets of America’s Wealthy), and they’ve made a study over the years of the habits of the wealthy in America.

What they learned about America’s wealthy is summed up in this quote from the book:

“It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes, wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self discipline.”

There are many lessons in this book, and that quote touches on a few of them. The most important lesson is that you don’t need to be born into the right circumstances to become wealthy. It sometimes takes luck, but mostly takes self discipline and perseverance. In short, stop finding excuses – you too can become rich!

I know, that probably sounds a bit like an infomercial for some get rich quick scheme, but it’s not. They never say you can do it over night or that its something you can do on the weekends in your spare time. Quite the contrary. It takes years of planning and discipline, but that’s not to say it takes as much as a career or full time job. You just need to have a plan and keep at it.

OK, enough cheerleading about how you can do it… let’s answer a basic question: What is wealth?

The definition of wealth.

Wealth can be defined in many different ways, but in its most common use it equates to a person’s net worth. That is, the value of everything a person owns, minus what a person owes.

That’s overly simplistic, but you get the idea. Having a fancy Mercedes Benz in the driveway doesn’t make you any more wealthy if you owe more on the loan than the car is worth… or if you’re leasing it and don’t actually own it at all. That’s because the car is a liability, not an asset. An asset is something that either puts money in your pocket, or can be sold to generate cash. A liability is something that costs you money.

But there’s a difference in assets too. Some are liquid, and some are not. Stocks for instance are generally more liquid than real estate, since you can sell a shares of a stock much easier than you can a house.

How the wealthy view (and use) money.

The wealthy get rich by maximizing their return on investment. They may still spend big bucks on discretionary items, but they view those purchases as investments, not mere expenses. They are more apt to maximize quality and value, regardless of price. But that’s not the same as buying expensive name-brand merchandise for the sake of owning expensive name-brand merchandise. This has especially been true of the rich during the recession.

There are definitely plenty of people with money who act rich, but when their finances are viewed more closely it’s clear that they are only suffering from Affluenza (The All-Consuming Epidemic).

Don’t be one of them.

The rich and debt.

You may think that the wealthy eschew debt and pay only in cash, but that turns out not to be the case entirely. Stanley and Danko found that most American millionaires tend to pay for large ticket items like cars, homes and boats with cash and to the extent that they use debt it is for investment purposes. This is likely a big difference between the middle class wage earner and the millionaire, but if the wage earner can get to a point where he can buy those big ticket items without debt, then he’s well on the road to a more financially free lifestyle if not the road to riches.

Tips for increasing your wealth.

OK, enough about how we’re different from the rich. Here’s how to become more like them financially:

Don’t look to debt to fund your lifestyle – this includes getting a college degree. Going $30,000 into debt for a degree and getting a job with an income ceiling of $30,000 probably isn’t worth it in the long run.
Have cash on hand to cover your unexpected expenses (emergency fund).
Live below your means – spend less than you earn and avoid Lifestyle Creep !
Plan – plan for today, tomorrow and 30 years after retirement.
Diversify – invest in mutual funds and bonds, not just cash. Add exposure to commodities and real estate.
Don’t use credit for purchasing – unless you can (and do!) pay off the balance each month!

If I had to distill the lessons learned in The Millionaire Next Door into one simple concept it would be this:

Break out of the debt cycle; plan, save and work to avoid going into debt for any reason.

If you master that, you’ll have the tools and resources on hand to accumulate wealth instead of payments.

Source

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.

Consumers changing their spending habits.

Joe — Fri, 03 Jun 2011 01:00:37 +0000

According to a survey by insolvency trade body R3, over 80% of the British population have changed the way they spend their money over the last year.

More than half (51%) of the population aren’t buying as many non-essential items such as DVDs and clothes, while almost half (47%) said they are now shopping around before they buy something to make sure they get the best deal. Just over one fifth (22%) said they no longer purchase non-essentials from specialist retail chains – they buy them in the supermarket instead.

The findings of the research revealed that women are ‘leading the charge’ when it comes to cutting back on spending – with more women switching to ‘value’ or own-brand products (42%), compared with 32% of men.

Almost half (44%) of women have started using discount vouchers when they go shopping, with just 31% of men doing the same.

Meanwhile, nearly one quarter (23%) of women now set themselves a budget – whilst just 15% of men do the same.

Frances Coulson, President of R3, said: “It is encouraging to see that a considerable percentage of people are actively trying to lower their expenditure as this will help them to live within their means. However, it is a shame that budgeting remains quite low down on people’s agenda. Setting a budget enables you to clearly see how much you spend against your income. A budget is probably the most powerful financial weapon in the fight against debt and its value should not be underestimated.”

Budgeting – how it can help ‘fight’ against debt

After that comment about budgeting being a powerful weapon in ‘the fight against debt’, we’re going to take a brief look at how your budget could help you fight against debt.

Your monthly budget can allow you to see pretty much everything about your finances: where your money is coming from, where it is going – and more importantly, where you may be able to save money.

If, for example, you can see that you’re spending too much money on non-essentials, and can’t afford your debt repayments as a result of this… this can help you cut back and free up the money you need for your debts.

That’s one reason having a budget is so important in the fight against debt – because you can clearly see where you’re spending too much money and make the necessary changes yourself.

Sometimes, however, cutting back might not be enough… and your debts may start to grow and become unmanageable.

If you can’t afford your payments and it doesn’t look like cutting back will be enough for you, you may find that debt management is a suitable solution to your problem. This site explains debt management in more detail, but you could also speak to a professional debt adviser for some advice on what you could do to help your situation.

Debt management isn’t without its drawbacks – repaying your debt more slowly can cost you more in the long run, for example – but it could still be the best way for you to address your debts.

This has been a guest post from the folks at Debt Advice Now, who provide advice and a wide range of solutions for people in debt. Visit www.debtadvicenow.co.uk to find out more.

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

Spring Cleaning My Finances and Looking Ahead.

Joe — Wed, 11 May 2011 17:30:17 +0000

“The open palm of desire
Wants everything
It wants everything
It wants soil as soft as summer
And the strength to push like spring”

-P. Simon, Further to Fly

Spring is here (FINALLY)!

It’s been a long, cold, lonely winter here in the northeast, but the buds are present and the tulips are pushing through. That means it’s spring cleaning time – time to get our (financial) houses in order!

Here’s how I’m cleaning out the financial cobwebs in my life this spring, and using that desire to push like spring into a summer realignment of my retirement planning.

Consolidating bank accounts

Life’s been a bit crazy for me these past 7 years. Here’s what happened to me that had an effect on my finances:

I moved to a town 2 hours away and changed jobs
I became a homeowner for the first time
I had a child
I had another child
I moved to another new town (20 minutes away) and bought a new house, to make room for an expanding family
I had another child (that makes 3!)
I changed jobs again

That’s pretty much it, but I think that’s enough.

All of the above changes have left me in a situation of having abandoned bank accounts strewn to the four winds. As of just last week, I had 5 bank accounts at four different banks! That’s not counting any high yield, online savings accounts at ING and HSBC either. That’s just local banks and credit unions.

Remarkably, most had little money in them and no fees associated with keeping them open, even though they were dormant. When I cleaned out the two accounts at one bank that had been dormant for more than 2 years, I had just under $50 between the two of them. I probably did them a favor by saving them the money to mail me bank statements every month stating that nothing had changed from the previous month!

Of course, all of these accounts make my book keeping a hassle too. I had piles of useless papers to be keep, or discarded securely and so many accounts in Quicken that my eyes glazed over every time I started to reconcile my banking activity. Not the thing you want to happen when maintaining your finances.

In fact, I made a sort of informal pledge to myself at the beginning of the year to simplify and streamline my financial life as much as possible. It’s already paying off. I no longer feel overwhelmed by the number of accounts and financial detritus cluttering my Quicken records. As a result, I am up to date on my banking for the first time in over a year! Go, Me!

Refinancing

Another effect of all this moving around over the past 7 years is that while I got a decent interest rate on my mortgage in 2008, rates had gone even lower since then.

Rates got so low that I initiated a refinance back in January with a local credit union, which meant yet another bank account (see above), but it was worth it.

It took about two months of processing, but I went from 6% to 4.5% – saving over $200 a month!

I was initially reluctant to refinance, but the rates just became stupid low, and it’s a bi-weekly payment schedule with no pre-payment penalties so it just made sense. Besides, it wasn’t a cash-out refinance, so I wasn’t setting the clock back on owning the home free-and-clear.

Looking ahead

“…And the strength to push like spring”

Rollover to an IRA

That covers what I’ve done so far this year, but the final result of that list of financial changes is due to the job changing: I have a dormant 401(k) plan.

I’ve written about this before. The simple problem is that for the first time in my professional life, I work at a company that offers a terrible 401(k) plan and no company match. I love the job, and it’s in a very secure sector, so it was still the right move to make. But while all this dust was settling on the new job and baby activity, I had put my retirement contributions on hold until I figured out what I wanted to do with it all.

Well, I finally figured it out, and now I need to implement it. No more dawdling, dammit!

In the next few weeks, I will be rolling over my 401(k) to a simple IRA and start implementing my rollover plan detailed here.

Next steps.

After that, I figure it’s a good time to create a new budget to account for the savings from the refinance and the new contributions to my IRA as well as the hidden costs of living in this new house with another child. But more on that another day.

How to Survive (and Possibly Thrive during) Stagflation.

Joe — Tue, 10 May 2011 16:57:05 +0000

Stagflation. The dreaded “S” word. Stagflation is loosely defined as an economic environment in which inflation is rising, while economic growth (or wage growth) is stagnant or declining. It’s often characterized by high unemployment, and rising prices (high inflation) – the worst of both worlds.

Stagflation, 70′s style.

Most people who are familiar with the term stagflation will no doubt think of the 1970′s when they hear the word. The 1970′s in America was defined by stagflation, and oil shocks.

There is a common belief among many that stagflation in the 1970′s was caused by oil shocks – rapid spikes in oil price, caused by the OPEC nations, and as this article points out:

In desperation, President Jimmy Carter (1977-1981) tried to combat economic weakness and unemployment by increasing government spending, and he established voluntary wage and price guidelines to control inflation. Both were largely unsuccessful.

Others argue that the very reason those efforts were unsuccessful was because they were in fact the cause of much of the problem. Lutz Kilian points out that 1970′s stagflation was caused by poor monetary policy. Oil shocks didn’t help the situation any, but neither did they cause it.

Increasing government spending, lax monetary policy and rising oil prices… sound familiar?

Stagflation, 21st century style.

Despite Ben Bernenke’s claims to the contrary, real inflation has risen quite sharply over the past year. Gasoline prices alone have risen over 10%, food prices aren’t far behind.

Up until now, Bernenke and company have focused only on “core inflation” which excludes “volatile” areas of spending like food and gas. The problem is that while these expenses are volatile and prone to high degrees of fluctuation, they also happen to be things that people need to buy.

It’s one thing to exclude volatile spikes in situations like 2007-2008, when fuel prices spiked, but then receded. However, when real inflation takes hold, the core inflation numbers become misleading at best, and insulting to the general public at worst. As I write this, inflation by some counts is closer to 10% than the official 2.6%.

Everybody knows they’re paying more for food and fuel, so Bernenke only loses credibility with the general populace when he comes out with statements about inflation being “mild” or “tame.”

The Federal Reserve’s liquidity policy is spurring inflation and even leading some states to seek alternative currency.

John Boland, financial adviser at Maple Capital Management sees inflation as high as 6% by the end of 2011 – and that’s the “official number”, not counting food and gas prices!

Some have sounded the alarm over hyperinflation, but personal incomes are flat , at best and declining at worst. This coupled with high unemployment seems to suggest either depression or stagflation.

It looks to me like we have a little of both: depression in the things we want, inflation in the things we need. Things like cell phones, televisions and computers are getting cheaper while food, gas and clothing are getting more expensive.

So, the stage looks set for a potential encore presentation of 70′s style stagflation. How do you survive stagflation and can you possibly thrive during such a time?

Thriving through stagflation

Looking back at the 1970′s makes it pretty clear that very, very few people got rich after accounting for inflation. In fact, it was considered a victory just to keep pace with inflation and not lose “too much” of your wealth.

The average American was much worse off by the time stagflation ended in the early 1980′s.

Here are some of the ways people were able to maintain their savings, if not prosper at least a little.

Investing

Bonds

Seeking Alpha sums up investing in bonds during stagflation like so:

“During the last stagflation, bonds were called “certificates of confiscation” by many professionals in fixed income. It paid to have your fixed income assets as short as possible.”

Because inflation results in each dollar being worth less than previously and a bond is an agreement to pay back a debt today in tomorrow’s dollars, the bond holder is paid back in dollars worth less than he lent. In effect, having his wealth confiscated.

Treasuries are pretty much in the same boat as traditional bonds here, although you can now buy TIPS (Treasury Inflation-Protected Securities). TIPS didn’t exist in the 1970′s, and they were created as a means to protect the value of your savings from inflation. You can learn more about TIPS and buy TIPS at TreasuryDirect.com. Of course, TIPS are indexed to the official government inflation rate and as we’ve seen above, that’s much lower than the real rate. So your savings are still likely to lose value if held in TIPS.

If you have an investment account, you can also buy shares of the iShares Barclays TIPS Bond (TIP) ETF.

If you do hold bonds, keep your domestic bond duration to maturity short. You may also want to diversify into foreign currency bonds.

Some short-term bond ETFs you could use are the Vanguard Short-Term Bond ETF (BSV) and the iShares Barclays 1-3 Year Credit Bond (CSJ). Similarly, there are a number of International bond fund ETFs to choose from as well.

Stocks

When it comes to picking stocks for inflationary or stagflationary times, pricing power is all important. Pricing power simply refers to a company’s ability to raise prices to maintain profit, and not lose sales in the process.

These are the kinds of companies that produce things people need, or are most reluctant to give up. Think: utilities, energy, healthcare and consumer staples.

Commodities

Gold, silver, oil precious metals and agriculture all tend to rise with inflation.

Most commodities have already risen due to anticipated spikes in inflation with excess government spending and have continued to rise with inflation. Precious metals, for example, are probably not likely to be a money maker this late in the game, but they may be one of the few wealth preserving investments this time around.

Other commodities, like oil and agriculture are less of a pure inflation hedge and probably make sense as long term holdings even without high inflation.

You can buy gold coins, and coffee futures on there own, but you can also invest in broad indexes of these and more through ETFs. This provides added diversification, and will let you capture most of the gains with a bit less risk.

To be clear, ETFs that focus on one type of holding are not really diversified. For example, the ETF GLD is focused solely on gold, while DBP is a broader index in the precious metals category. DBP will reward you for gold rising as well as silver and copper, and punish you less if silver takes a tumble but gold and copper remain stable.

There are also a number of good mutual funds for investing in sector stocks, bonds and commodities. I recommend anyone who is interested in those take a look at the fund on Morningstar and find a highly rated (4 or 5 star) fund.

Housing

Traditionally, housing is a go-to place for protecting your money and riding out inflationary waves. Unfortunately, the bursting of the housing bubble has made it difficult to ride that wave this time around. It’s likely to take along time before housing prices begin to rise enough to alleviate inflation, much less keep up with it.

Real estate will likely be sitting this round of inflation out, so people should buy a house only if it makes sense for them to do so – i.e.: it fits their lifestyle and long term goals – not as an investment.

Cash is king

Cash is king when interest rates rise. This will likely be the case toward the end of this inflation cycle, as it was at the end of the last bought of stagflation. In the late 1970′s – 1982, money market accounts were fairly new and proved to be one of the few safe havens.

The problem is that the Fed has kept rates so low, that your savings will actually lose value in a money market now. Eventually though, even the Fed will have to recognize inflation has risen too far too fast and will be forced to do something about it. What they do is raise rates. Quite possibly, very quickly and quite high. This is bad news for people with variable rate debt (mortgages and credit cards) but great news for people with cash on hand to stash in a money market account.

The trick of course is to make it to these final stages with enough money left to preserve in a money market account.

What if I’m wrong?

Whenever I play fortune teller and try to predict the future, I always ask myself: What if I’m wrong?

I’m no expert, but I do know enough to know I don’t know it all and that puts me ahead of many so called experts. So, here’s what you should do if I’m wrong about my views and opinions on stagflation over the next few years:

DIVERSIFY.

That’s what I plan on doing with my money.

Life is full of “what-if”‘s, the only way to get through those moments is to plan for as many possibilities as we can. I still have much of my portfolio in more traditional growth stocks and bonds. I’m not “all in” on gold. I’m simply leaning more toward the types of investments outline in this article so that in the event that these predictions come true, at least in part, I will be in a position to be less negatively impacted.

As I said, I’m no expert and you should speak with a financial planner before making any big decisions. Gold looks great and oil seems like a no brainer, but their prices have been bid up in anticipation of inflation and you may get caught buying high at this point.

I just think you should be aware of the specter of stagflation as being just as possible as rampant inflation or the “gold bubble” bursting.

This has been a guest post from Mike Ahi. Mike writes about investing for the blog: AfterHoursInvesting.

15 Scholarship Application Tips.

Joe — Wed, 04 May 2011 18:47:17 +0000

This is a guest post by Louise Baker. Louise is a freelance blogger and journalist who writes for Zen College Life, the directory of higher education, distance learning, and online degrees. She most recently wrote about where to get the best criminal justice degrees.

With the price of college tuition so high and going higher, many people are looking even harder for was to snag a good scholarship. Here are 15 tips for applying for a scholarship.

1. Apply as early as possible. Most scholarships have deadlines for application submission. Be sure to get your application in early, so the opportunities aren’t missed.

2. Follow the instructions, proofread your application carefully, then have someone else proofread it again. Errors can result in a scholarship application being denied before even getting into the running.

3. Submit scholarship applications via certified mail. This will keep it safe, presentable, and make it look more professional.

4. Be sure that you are eligible for any scholarships that you want to apply for before submitting them. This will keep you from wasting your time when you could be working on other applications.

5. Check for scholarships offered by the schools you want to attend. Most have school-specific scholarships available to potential students.

6. Participate in activities that you can list on your application. Being a part of voluntary community service programs, clubs, and sports teams can increase the chances of being awarded a scholarship, as can awards, certificates for accomplishments, and career experience.

7. This should go without saying, but keep your grades up. Maintaining a high GPA makes you eligible for far more scholarships.

8. Don’t pass up smaller opportunities. Every little bit helps, when you’re paying for college. Even a small grant for books or other supplies is worth an application.

9. Don’t restrict yourself to one or two applications. Apply for as many scholarships as you can find that you are eligible for. Do some research and make a list of scholarships, then take the time and apply. It does take time, but it also increases your chances of getting one or more. A couple of scholarships, even moderate ones, could take a huge load of financial worries off your shoulders.

10. Don’t be reserved when it comes to listing your achievements. Explain confidently why you deserve the scholarship you are applying for, if an essay or letter to that effect is required.

11. Some scholarships are course-specific, requiring that you enroll for a particular course before applying. If you have already been accepted into a school or already have a good scholarship under your belt to help you financially, course-specific scholarships can help you along even more.

12. Look into special situation scholarships. Depending on gender, religion, ethnicity, medical history, sexual orientation, and many other student-specific conditions, you could qualify for one or more of these. Some churches also have scholarship opportunities available to members.

13. Keep well-organized records of everything. If you are attending college abroad, you may need proof of funds and enrollment to get a student visa. This includes any scholarship offers that you are awarded.

14. Never pay to apply for scholarships. If a scholarship requires payment with your application, chances are it is a scam. There’s no such thing as a guaranteed scholarship.

15. Always have a back-up plan. While a scholarship is your ideal goal, it is possible that it won’t come through. Have other ways to pay for school. Think about applying for student loans, look into company sponsorships, and talk to family members who might be able to help you. Whether you get a scholarship or not, it might be wise to get a job and save your money for anything you might need that a scholarship won’t pay for.

Dumb Money Tip from SmartMoney Mag.

Joe — Mon, 02 May 2011 17:00:52 +0000

Here’s a great example of how “smart” money people often get lost in the details, and make bad choices (or in this case, bad recommendations to people). I’m talking about a recent SmartMoney article where they espouse the virtues of borrowing from your 401k.

The basis for their recommendation that “never borrow from your 401k” is outdated financial advice is that they believe a 401k loan is:

“The most affordable loan available.”

This is true – up to a point. They’re mostly just looking at interest payments, and ignoring all the other effects and risks of a 401k loan. When you simply examine the interest owed and compare that to other loans, then a 401k loan does seem like a clear winner.

According to the Profit Sharing/401(k) Council of America:

“Approximately 90% of employers offering 401(k)s permit employees to borrow from them, according to the PSCA, and the loans can last for up to 15 years.”

But just because you can do it, doesn’t mean borrowing from your 401k is a good idea.

Let’s look at this a little deeper..

Why borrowing from a 401k is a good idea (sort of)

The pundits at SmartMoney would have you believe that borrowing from your 401k is a smart money move, at least in the current economic climate. But does this really make sense beyond the simple comparison of interest paid after taxes?

Here’s SmartMoney’s spin:

“Advisers, for example, typically discouraged clients from taking a loan from their 401(k) – but this is now the cheapest way to borrow money, with the average rate at 4.25%, lower than most personal loans”

Their cursory comparison of interest breaks down like so:

Average credit cards interest rate: 14%
Average home equity lines of credit interest rate: 5.22%
Average 401k loan interest rate: 4.25% (“prime (currently 3.25%) plus 1%, “)

Some of their other arguments in favor of borrowing from your 401k are:

The money you pay the loan back with goes into your 401k, instead of to a bank.
Paying a 401k loan off is easier than other loans, because the contribution you would normally be making go toward the loan 1st.

Why a 401k loan is a bad idea

OK, so by those numbers, a 401k loan doesn’t seem so bad. But here are some things not considered:

Time stops working with you, and starts working against you. When you stop saving for retirement, you put that day you can retire further off in the future – lengthening the time you’ll need to work.
Increased taxes. You end up owing more in taxes due to the lost deduction when you stop contributing to the plan to pay off debts and other loans.
Decreased gains. You lose much of the gains in your 401k because you have less money “at work” compounding gains for you.
The entire loan amount will become due within 90 days should you leave your job or lose your job. Failure to pay that amount results in the outstanding balance being treated as taxable income and you get hit with an additional 10% early withdrawal penalty if you’re younger than 59 1/2.
Welcome to servitude. Besides the very real risk of losing your job in a high unemployment environment, this is in effect making you even more of an indentured servant to your employer as you lose a significant amount of job flexibility. You will not be able to take a new opportunity at another company without a financial penalty (see above) if you cannot pay back your 401k loan in full first. Think about that.

Final thoughts

Well by now you can tell I’m no fan of 401k loans, but like so many things in finance there is no hard-fast rule here. Borrowing from a 401k may make sense for some people in dire straights, but even considering such a move should be viewed as a sign that you’re on shaky financial footing.

To me, a 401k loan is a last resort and even then only to be considered along with some serious soul searching and self evaluation as to how you got in the situation where this even sounds like a good idea to begin with.

The SmartMoney article claims that:

… right now, the cheapest bank for many borrowers—especially those who feel secure in their job–is their own 401(k).

But who really feels secure in their job right now?

They also say that you’ll be paying yourself back with interest instead of paying a bank. The implication here is that a bank would just be taking your money for profit in form of interest, while interest paid on a 401k loan is money in your pocket. But with a 401k loan I think you’re really only stealing from your future.

Besides the financial penalties discussed above, borrowing from your 401k sets you back on the road to retirement and for many people that leads to increased risk because they feel the need to “make up for lost time” and invest in more aggressive (i.e. risky) funds then they should.

Still, if you find yourself in a position where you’re being crushed with high interest debt and your retirement savings are at risk anyway (perhaps through a divorce settlement?) then it may be the path of least pain and get you back on the road to retirement quicker. Just think over the implications first.

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!

Simple Debt-Free Finance » Tips

3 Ways To Negotiate a Credit Card Debt Settlement Yourself.

3 Ways To Negotiate a Credit Card Debt Settlement Yourself.

I. Lump-sum settlement.

II. Workout arrangement.

III. A Forbearance Program.

Final thoughts.

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Step 2. Find out where you can watch your shows online.

Step 3. Determine how to stream online content to your t.v..

A word of caution

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Streaming programs to your television.

Pick a device.

How to stream online content to your t.v..

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2. Extended Warranties.

3. Automobile Collision Insurance.

4. Rental Car Insurance.

5. Flight Insurance.

6. Water Line Coverage.

7. Life Insurance for Children

8. Credit Card Loss Insurance.

9. Mortgage Life Insurance.

10. Unemployment Insurance.

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#5. Handing out money with no strings attached.

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Investing

Housing