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Archive for April, 2010

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Tools to help you figure out your financial health!

Friday, April 30th, 2010

Today we’re not talking about an article, but a really cool tool I found on CNN Money‘s website.  This tool is a Financial Health Calculator, and basically you plug in your specific money and retirement plans, and it walks you through it’s process, telling you if you’re finances are on track to retire without any problems. 

I love this tool, but I should tell you that it slightly deviates from our views in a couple of places:

  • They suggest keeping your house payment under 28% of your gross income.  We suggest you keep it under 25% of your gross income.  I know it’s just 3%, but that can add up!
  • They suggest that you keep your debt under 36% of your gross income (including house payment).  We want your goal to be no debt.  First, we want you to become debt free except for the house, then we want you to pay off the house.  Given this view, there is NO percentage that it acceptable debt to carry on a regular basis.
  • We are in agreement on the emergency fund.  3 to 6 months worth of expenses is what you should aim for!
  • Their diversification “bubble” suggests being conservative in your retirement savings, and making use of bonds and other funds that are less risky.  When you’re older, it is wise to be conservative with your money…this is true.  However, we prefer diversifying into good growth stock mutual funds. 
  • Company stock is not something that we generally talk about, but we agree with CNN Money.  You shouldn’t hold too much of one stock, even if it is your employer.  Just because YOU have faith in your employer does not mean that they are doing well in the world market.
  • Regarding life insurance, they suggest having 5 times your yearly salary in life insurance.  We suggest having 10 times your yearly salary.  This is supposed to be for income replacement.  So, if you don’t need to replace your income for anyone, then you don’t need 10 times your income, and probably not even 5.  You do, however, need enough to cover any final expenses and debt you might have.
  • The last “bubble” of the calculator is about retirement savings, but doesn’t really tell what you should be saving…it only tells if you’re on track to retire at age 65.  As we have always said, you should save 15% of your gross income (minimum, if you can).  This should put you on track to retire with a very comfortable nest egg.

Use this tool as a loose guideline for your finances, but don’t forget to replace their information with our information from this post in the appropriate places. 

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You’ve paid off your debt…now what?

Wednesday, April 28th, 2010

We talk a lot about ways to save money and get out of debt on this website, but we don’t always talk about what happens when you’ve followed these tips and find yourself out of debt.  Today, I want to discuss what you should be doing once you find yourself there.

Well, the first thing you should notice when you find yourself out of debt (including or not including the house is OK in our opinion) is all of the extra cash you have per month!  After doing your own version of ”the happy dance”, it’s time to sit down and figure out what to do with that money.  You already have an emergency fund started ($1,000), but at this point you should go ahead and increase the fund to 3 to 6 months of your living expenses.  For most people this amounts to at least $10,000.  I know that this might seem like a HUGE amount of money, but in actuality, when you find yourself without any payments, it isn’t that hard to achieve. 

After fully funding your emergency fund, you should then move onto saving for your retirement.  The economy is always fluctuating, but some decent “long term” vehicles for building your nest egg would be a Roth IRA and good growth stock mutual funds.  I know that trying to figure out which are good funds to invest in can be difficult, so if you’re having trouble, check out morningstar.com.  This is a great tool, and they update their website often enough to keep you apprised of how the fund is performing.  Need a place to stash some short term cash, like your emergency fund?  Try an interest bearing checking account or a money market account (with check writing capabilities).  They aren’t bearing a lot of interest right now, but your emergency fund is supposed to be liquid, so that you can get your hands on the money quick. 

We suggest saving at least 15% of your household income, pre-tax.  So, if you make $2,000 a month before taxes, then you should be saving $300 a month.  Now, sometimes it is hard to reach that amount.  IF that’s the case, then do ALL you can, to get as close to that number as you can.  Even if you fall short, you’re still ahead of the game, and doing better than many others.

I know it can be overwhelming to plan your retirement savings, but if you don’t take an active role in your future, who will?  And when you think about it, why should anyone else be responsible for YOUR future other than you?  Take the time to figure out your savings plan, and guarantee yourself a better chance than “the average Joe”!

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House buying when you’re learning to be frugal.

Monday, April 26th, 2010

I always wonder why people buy the size/amount of house they don’t need.  They look for 5ooo square feet (minimum?), hardwood, chef’s kitchen, marble this and that with several acres (where you can find it) of land etc. house.  This is the silliest thing I’ve ever seen.  One of the things your favorite southern couple would like you to ponder is to buy the house you need, not the house you want!

If you’re in the market for a home (hopefully your other debt is paid off, like we suggest, and you have a down payment), then you should be aware of what your family truly needs.  If there are 3 of you (mom, dad and baby), then a 4 bedroom house IS overkill.  If no one in the house cooks (or likes to), then you don’t REALLY need the chef’s kitchen now, do you?  You should get just as much house as is required by your families needs, that way, you can save more for the future and have your “comfortable” home paid off sooner. 

Struggling with your current home’s mortgage payment?  Maybe it’s time you downsized!  Many people get into houses that they can’t really afford, and then think there isn’t anything they can do about it, but this isn’t true.  If you bought more house than you can afford, chances are, you’re struggling.  Now, many people like to blame the banks (and there are some at fault), but they are not the only place to lay blame.  It’s easy to find and attack a scapegoat, but in reality, many people who bought more home than they could afford should have known they couldn’t afford them.  I know that the interest only loans and the ARM’s made it difficult to understand the EXACT terms of the loan, but let’s be honest…if you were approved for a $200,000 home, and you make $20,000 a year, sirens should have been going off in your head.  You should have been confused as to why you could afford so much.  You should have paused during your jumps for joy…if you were jumping for joy, saying “WOW, look what I can afford”, that WAS the warning sign! 

So, now you have more home than you can afford.  Sounds like it’s time to downsize!  I know that it can be hard to sell a home in this market, but as long as you keep your price competitive, and keep the home looking great, then you’ve got a good chance.  And something else of note?  Even if you have to take on a small personal loan to get out of the house, you’re still better off.  For example:  Let’s say your house is worth $225,000, and you put it on the market for $230,000.  Someone offers you $215,000, and they pay closing costs.  Well, after looking (really looking) at your finances, you realize you can’t afford more than a $150,000 home.  It’s better to sell the house for the offered price, take on a $10,000 personal loan, and find a house for $140,000.  You’re going to be better off, even if you did have to “take a hit” on the other house, because you will actually be able to make your mortgage payment now!  Sometimes, you just have to look at the bigger picture!

Remember, sometimes saving money IS the obvious choice.  Don’t buy more than you should.  Sounds simple, so try and live by it!

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And, once again, the savings rate is falling!

Friday, April 23rd, 2010

I cannot even begin to tell you how disappointed I was to discover that the savings rate for the United States has begun to decline again! Today we have a blog post about the United States savings rate, and how it has begun to decline. Visit this website to see the current rate, which is even lower than the rate stated in the blog post. Trending downward I’d say.

As most of our readers know, just a few short years ago, the savings rate in the U.S. was in the negatives, and had been for a few years. That doesn’t even seem possible, does it? No, but unfortunately it is. So, what does it mean? It means that as a nation, we were spending more than we were bringing in. We were living beyond our means. Then, the economy started to tank and many of us woke up and started to save for the future. Out of all of the bad things that came with a down economy, this was a bright point. Now, however, we’ve decided that we were saving more than enough and that it is time to blow through our money again! WHY would we be convinced of this? Did we all suddenly wake up rich? I don’t think so! We need to realize that the more we save now, and the earlier we start saving, the more we will have when we retire!

The recent 1.5% decline in savings, if continued over 30 years could mean the difference between retiring comfortably and retiring on “just enough”. It could mean the difference between taking trips to fun locations when you retire, or having a need to have a part time job when you retire. I don’t know about you, but I’d say that it’s worth a few sacrifices now to get to retire without the stress of money problems. Getting out of debt now and saving for the future should be a top priority for all of us. Read the article. Get motivated. Then get started on saving, or try and do more than you already are!

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90 days same as cash…what a ripoff!

Wednesday, April 21st, 2010

Anything that sounds too good to be true is too good to be true.  Of this, I am sure.  The 90 days same as cash gimmick definitely qualifies as something that sounds great, but really isn’t.  Never ever fall for it.  Why?  I’ll tell you…

When a person agrees to a 90 days same as cash gimmick, they are saying that they will pay the full amount (and not a penny less) within the 90 days allotted.  How many of these people actually do that?  Well, according to Dave Ramsey’s website (and a few others), only 12% of people who do 90 days same as cash financing actually pay it off within that time frame!!  Hello!  9 out of 10 people don’t do what they say they’ll do!  This means that you shouldn’t even think about doing this!  But you say, “Oh Emily, I will be the one that pays it off in time”.  Oh really?  Well, if you can make such a guarantee, then you should just pay cash in full in the first place! 

IF, however, you decide that you want to fall for the gimmick, and you don’t pay it off on time, the company will backdate the interest on your purchases to the 1st date of purchase.  And how much interest will you be charged from day one?  Probably around 24%!  So, you went from no interest to 24% over the entire length of time you have the loan (it is a loan, even if you didn’t realize it).  What a ripoff!

What you should know as a consumer is that there is NO financing option offered by any business that is a “good deal” for you!  They will always find a way to part you from your money.  Do the smart thing and just say no to their gimmicks!

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Saving time and money!

Monday, April 19th, 2010

Today I am adding a new category to our posts: Saving time.  I feel that saving time is a great compliment to saving or making money, because the more time you save on “grunt work” tasks, the more time you have to strategize on your savings and the more time you have to work and make money.  It’s a win-win!

So, as many of our regular readers now know, we’re expecting a baby this summer!  This means that we’ve been getting up to speed on ways to save on babies/children, and I can’t think of 2 things mothers and fathers need to save more than money and time!  As such, I have 2 great tips to share today!  We are attending a maternity fair (kind of like a career fair) very soon, which is a great way to save some money.  There is no admission charge, and many of the vendors offer giveaways, so you could end up with lots of free stuff!  The main sponsor of the fair, in this case a hospital, is also offering a grand prize that includes labor and delivery of your baby!  Obviously, not everyone will win, but it’s worth a couple of hours one day to try! 

Now for the time saving part…IF you do decide to check out vendor sponsored maternity fairs, or food fairs or career fairs etc., be sure to take address labels with you.  Many of these places expect a name and address to register you to win their prizes, and if you have address labels with you, you will save yourself plenty of time, so you can see/do more things at the fair!  It will make your life less stressful! 

As humans, we are always coming up with ways to save time.  Hopefully, this will benefit you in more ways than just trade shows and fairs!  Good luck!

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Bad news if you plan on retiring with a nest egg…

Friday, April 16th, 2010

Today’s article. 2009 Tax Season: Last Good Year for High-Earning Americans? is short and sweet, but very important.  Now, I know many of you will read what it has to say and decide that it has nothing to do with you, but the fact of the matter is that if you plan on retiring with a nest egg, then it does, in fact, pertain to you.

The article  revolves around 3 tax problems…the Bush administration tax cuts, the Estate tax and the investment income tax.  The Bush administration tax cuts are about to expire.  This isn’t a concern for many Americans, but to those it affects, it will mean a large chunk of money out of their monthly budget. 

The Estate tax, however, will affect many more people, since it covers anyone who leaves behind an inheritance between $1 million and $10 million dollars.  Don’t think it’s a big deal to tax estates?  Well, If you’re planning on having a nest egg, saving your pennies now for retirement, then you should think it’s a big deal.  Many of you will reach the minimum $1 million dollar cut off, and if you fall into that estate range, you should know that your estate will be taxed at a 55%  tax rate!  And for most of us, we will just barely break into the $1 million dollar range, which means that you proudly managed to save up all of that money, only to have $550,000 of your $1 million dollars taken by the government.  Take my advice and start “gifting” (check into yearly limits on how much you can gift per person) some money while you’re alive if you fall in this category.

The last tax issue covered in the article is the investment income tax (also called a capital gains tax) that is slated to raise in 2013.  I know this sounds like it only affects people “on Wall Street”, but I’ve got news for you; If you have stocks, bonds, precious metals or property, and sell them for a profit (with few exceptions), then you will be feeling the raise in this tax.  Stocks and bonds outside of retirement accounts might not be something many people participate in, but lots of people buy and sell property, and if you do, you will feel the change!

I know it’s hard to look 20 or 30 years in the future and see how these things might affect you, but you have to go there.  You have to know what you’re up against.  These changes in the tax code will be painful on more of us than we are led to believe.  Remember, saving $1000 a month will (on average, based on assumed 8% return) put $1 million dollars in your bank account in 28 years.  That isn’t too far fetched.  You could definitely do that.  And given that fact, you should worry about how it will be taxed.

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The single person’s struggle with bills and budgets…

Wednesday, April 14th, 2010

We talk a lot about couples on our website, but we aren’t oblivious to the fact that many of our readers are single, and that our single readers have different needs and questions than our other readers.  Our single readers have no one to be accountable to except themselves.  They have to do everything on their own.  That means they need a lot of information on how to plan for the future, and no one to help them acquire it.  What do they do when they want to make a budget, or start saving for retirement or pay off debt?  Well, these are the first 2 steps they should look at when they are ready to get on track. 

The first steps they should take toward getting their finances in order should be to find a person to whom they can be accountable.  This can be a parent, a best friend or even the pastor at their church.  It doesn’t matter who they choose, it merely has to be someone that they can trust with their private information that also has good financial sense (this doesn’t mean the person with the flashiest car or house, because those people are usually in debt themselves).  After finding someone to help keep them on “the straight and narrow path”, they need to sit down and write out their budget.  Don’t know where to begin?  Well, for now I’ll suggest this form to help you singles get started (be on the lookout for a better form from us in the future).  The important thing, no matter if you’re single or in a relationship, is that you’re on a plan and working toward a goal (hopefully to be debt free and saving for retirement). 

We always encourage our readers to leave comments with questions they might have and today is no exception.  Single or married, feel free to ask us what steps to follow up with, or any other questions you might have! 

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A neat way to save when you need some tools!

Monday, April 12th, 2010

Once spring rolls around, as it has this year, many of us find ourselves making plans for all of the things we’d like to do around the house.  From simple projects like adding new flowerbeds to large scale remodeling of a room, we want to make improvements to the place we spend the most time (hopefully you spend more time at your house than your office).  The problem with the desire to make these improvements is that the tools and other equipment required can be very expensive.  Is there a way around the high price tag?  I have 2 suggestions.

First, if you’re lucky enough to live in a few select cities throughout the U.S. (unfortunately, I am not), you can go to your local tool-lending library (find a list of cities here) and borrow the tools you need, saving perhaps hundreds of dollars per project.  This is a great idea!  I think this service should come to more cities and grow into something that can help us all save money and encourage us to learn how to maintain our own homes again.  Even a project like adding a small flowerbed involves purchasing a $200 or more tiller/cultivator (if you don’t want to have to dig the hole area out with a shovel, which, is totally fine in a money pinch).  Better to get the tools from a tool library! 

Don’t have a local tool library?  Then you’d better learn to do what we do, and that is borrow the expensive but seldom used tools from friends or family.  This is a little more tricky however, since if you don’t return the tool in the same condition in which it was given to you, you will have to replace it or run the risk of a damaged relationship with that friend or family member.  Our advice?  Treat the borrowed tool like it is on loan from a store, or has been rented.  That way, the fear of having to pay for it will keep you careful!

Clearly, I wasn’t too happy about the price of one of those tiller/cultivators after seeing the price.  As I said above, we don’t have a tool library in our area, so we are borrowing one from a family member.  The way I figure it, I just saved us $200!  Wouldn’t you like to save money this summer too?

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Money education for high schoolers and college students.

Friday, April 9th, 2010

I stumbled across an article on Fox Business titled How to Speak Money Fluently, which led me to another website, FoolProofMe.com.  FoolProofMe.com is what I want to talk about today.

Normally I am a big fan of Dave Ramsey’s School Curriculum, and although I still am, FoolProofMe has one feature that Dave Ramsey’s education tools don’t have:  They are free (thanks to contributions from credit unions and non-profit organizations).  FoolProofMe is a program that has specific lessons (based on age group) teaching people about finance.  They show young people what happens with their finances when they make poor decisions regarding money in their web based videos.   On the website you can find individual programs for high school teachers to use in their classrooms, college kids, as well as for parents who are home-schooling their children and grandparents, which is the same set up as Dave Ramsey’s school curriculum.

Whether you choose one of these options, or simply send us your question regarding helping you or your young child/friend with a money question (we will soon be adding a feature for you to be able to leave an anonymous question), you need to choose some method.  Our population needs this education.  It is crucial.  Without a financial education, we aren’t capable of making the informed financial decisions that we all face as adults.

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