Debt Free

Today I'm featuring one of the leading online banks, WTDirect. As with some of the other online banking leaders, they have much going for them. Founded in 2006 as a division of Wilmington Trust FSB, have been at the forefront of the online banking space since that time.

In early 2008 they further increased security by adding an additional layer of security to help authenticate their website. This helps WTDirect customers know they are at the genuine website, and not a phishing or other fraudulent site. It's one of the measures they've taken to boost customer confidence and be proactive in the fight against online fraud.

They are known for their high interest savings accounts, and they are consistently in the top 5% of interest rates for U.S. banks. That's great, because my off line bank pays about 40% less than this right now. Some of their other features include:

• No fees, No minimum to open (Note- To receive the high interest rate you must have a minimum of $10,000 in your account after the first 60 days)

• FDIC-insured (as are all U.S. banks. That's like when car companies say “We have anti-intrusion, steel door beams to keep you safe. Well, so do all the other car companies, it's required by law.)

• Higher transfer limits (Transfer up to $500,000 in and $200,000 out)

• Direct connection to real people through 1-800-WTDIRECT (What? Real people?)

As of June 19^th WTDirect is paying a robust, 3.26% on savings accounts, so if you're looking for an on-line bank, and if you're not getting this kind of interest rate, you should be, check them out here.

Posted by debtblog at 02:07 PM | Permalink | Comments (0) | TrackBacks (0)

I decided to look into the whole question of buying a new car just to save gas, because while I would love nothing more than to buy a new car, I find the process of actually doing so kind of revolting, and the thought of increasing my debt on a depreciating asset such as a car seems like financial suicide. Not to say that I don’t like cars. As you can tell from my frequency of automotive related posts, I actually love cars, but like many other loves, my attraction for things of a motorized nature has little to do with their financial appeal.

The first thing you have to examine is your current vehicle. Obviously that will have a tremendous impact on your decision. The gas mileage of your existing vehicle, how much you pay for insurance, it’s age and weather or not it’s nickel and diming you to death all enter into the equation. For the purposes of this discussion I’m going to choose a basic, 5 year old family sedan that actually gets pretty good gas mileage.

Let’s say you’re driving a 5-year old Honda Accord EX. It was one of the best selling cars in 2003 and there are sure plenty of them out there. The EPA combined fuel economy rating, revised for the new stricter standard is 25mpg. If you drive 15,000 miles per year you’ll burn 600 gallons of regular gas.

One note here:
Do not waste your money by burning premium fuel for this car. The manufacturer doesn’t recommend it, and as long as you’re using top tier gas, regular grade fuel has basically the same detergent additive package, so it will keep your engine just as clean as running premium. Only spend extra money to buy premium gas if your vehicle’s manufacturer recommends that you do so.

Back to the Accord. 600 gallons of regular will cost you roughly $2,460 at current prices. Yes, I know that gas prices will probably go up by the end of the year. They’ll probably go up by the end of the month. Lets say you were to trade in the Accord in on another Honda, the winner of my Top 10 Best Gas Mileage Cars (You Can Drive Every Day) Civic Hybrid. Now the Civic Hybrid gets 42mpg combined according to the EPA ratings, so for the same 15,000 miles you’d burn 357 gallons, at a cost of roughly $1,463. This means that you’ll save almost exactly $1,000 in annual fuel costs by switching to the Civic Hybrid over your old Accord.

That’s great, but you have to look at the other costs associated with the transaction. For one, your Accord, if you bought it new is paid off, or just about to be. That means from a pure cash flow basis you’ll be way behind by taking on monthly car payments of $455, assuming you could actually get a new Hybrid for the list price of $23,270, delivered. That also assumes you got a loan at today’s average auto loan rate of 6.48%. Honda actually has special 1.9%, 60 month financing for those who qualify, so you may be able to lower that to (only??) $413.

Average trade in for that car is $9,794, meaning you financed $13,476. If your Accord was paid off and you traded it in, your monthly payment would drop to an almost palatable $264. Edmunds.com lists the average annual cost for insurance, depreciation, and maintenance on the 2003 Accord LX as $3,200. Add that to the annual fuel bill of $2,460 for an annual cost of $5,660.

For the Civic, it’s much, much higher, mostly due to depreciation. Weather a hybrid will still depreciate at current rates is debatable, but there’s only past history to go on, so that’s what I used. Depreciation, maintenance, and insurance for the new Civic Hybrid totals a staggering $22,752 for the first 5 years of ownership. Over $12,000 of that sum is due to depreciation. The 5 year annual average is $4,550 + the fuel cost of $1,463, and the annual interest of $469, for a total annual cost of $6,582.

SO, it’s almost $1,000 cheaper annually to continue driving you old Accord, at least until you start having to fix things. If you have to replace a starter, timing belt, water pump, wheel bearing, CV joint or any one of the dozens of things that can go wrong on a used car as it goes past 150,000 miles, the equation could swing back in favor of the new Civic Hybrid.

For right now if you’ve got a similar car to the Accord, or something that costs less to operate and own, I’d say it isn’t worth it to buy a new car to save gas. If you’re driving a big truck or a car with a big V-8, I’ll see you at the Honda dealership!

Posted by debtblog at 03:27 AM | Permalink | Comments (0) | TrackBacks (0)

It only takes a few mistakes throughout your working life to kill any chances you may have of retiring wealthy. Heck, you can ensure that you'll be asking “Would you like fries with that?” if you're not careful. With that in mind I'm going to reveal 10 of the most common retirement financial planning mistakes that can keep you from retiring wealthy, and may even make sure you see a whole lot more of your grandkids; every Friday from 3-11 at the deep fryer.

Retirement Financial Planning Mistake #10 is relying on Social Security to fund your retirement. If you're under 35, it may not even be around when you retire, and for the rest of you it won't provide a very high standard of living, even if it does stick around. Your maximum Social Security monthly benefit if you retire this month is only $2,030 for a single person and $3,027 if you're a married couple.

While this does rise over time, it's not too much unless you have virtually zero expenses. Consider that if you own your home, property taxes will rise, especially if your area experiences dramatic real estate appreciation. You could easily find yourself in a position where your property taxes chew up nearly all your monthly Social Security income.

If you're covered under the railroad retirement act you'll fare much better. For those of you that think social security is such a fantastic retirement vehicle (Mom, you know who I'm talking about) you should take a gander at the plan that railroad industry employees got out of Congress. It was first enacted in 1934, then redone in 1935 when the Supreme Court found the first version unconstitutional. The version of the act we have now has been with us since 1974.

In case you're unaware what good lobbying can accomplish, the railroad union talked Congress into exempting railroad employees from the Social Security system. They knew a bad deal when they saw one, I suppose. They basically got a plan to replace social security, except that it delivers greater returns to participants. In addition there is a second tier that delivers benefits according to years of railroad industry service. The upshot of the whole thing is that, while a Social Security beneficiary retiring this month stands to receive only $2,030, a railroad employee retiring this month will get almost double; $3,959. Put that in your retirement planning pipe and smoke it!

Retirement Financial Planning Mistake #9 is never financially educating yourself. It will be hard to understand everything there is to know about finances and your money. Indeed, that's why there are professionals. You should know the basics of personal finance, however. That way you'll know what questions to ask, what terms mean and when things just don't pass the smell test. You'll also be in a better position when it comes to voting and understanding the candidates position's on financially related issues, as the politicians who make their way into office can have a huge impact on your financial future.

Retirement Financial Planning Mistake #8 is not considering retirement benefits when choosing your employer. This can happen when you're young and free, because hey, retirement's a long way off. Thinking like that will make sure that it's a long way off, you knucklehead!

Retirement Financial Planning Mistake #7 is putting all your eggs in the company stock retirement plan basket. I've said this one before, but you're relying on your company for both your primary source of income and retirement funding, and that could easily lead to trouble. Several well publicized corporate debacles, such as Enron, have illustrated the fallacy of this approach. While stories are rampant of Home Depot and Wal-Mart cashiers retiring wealthy due to their company retirement stock plans, for every one of those there are many others who paid the price when their company's stock tanked just about the time they were due to head to the golf course for the next 25 years. Unless you have no other way, put some of your money in your company stock, but put 70% somewhere else.

Closely related to mistake of keeping all your eggs in the company basket, is failure to adequately diversify your investments. All but complete financial newbies will be aware that the purpose of diversification is to reduce risk, yet many of those same people will have large percentages of their retirement funds concentrated in sector funds, company retirement accounts, real estate, or a few company's stocks. If you're young you can have time to recover from a problem, but if you're nearing retirement, this can have devastating results. Anyone living through the tech bubble burst in 2000, or real estate investors in the last year or two (depending upon where you live) can attest to the perils of this approach. Yes, you can achieve spectacular results with investments that are concentrated in narrow sectors or industries, but that's a strategy best left to younger investors that have time to weather a storm, should one occur.

Retirement Financial Planning Mistake #6 is spending more than you make. This will not only make it much more difficult to save for retirement, but can leave you deep in debt. You want to have income and be debt free when you retire, not have a string of credit card bills and other debts to contend with. Remember that if you're truly retired, you're on a fixed income, so as inflation rises, your real income will fall. That doesn't leave room for too much debt.

Retirement Financial Planning Mistake #5 is failing to make a retirement plan. Yeah, we've all heard the “failure to plan is planning to fail” adage that's drummed into your head in business school and elsewhere, but you know, there's actually quite a bit of truth to it. You need to find the two things that every plan should incorporate; a goal, and a path to achieve it. A bit of oversimplification, yes, but that's what you need. You want to find out when you want to retire, what else (kid's college, vacation property, etc.) you'll have to fund along the way, and how much income you'll need to support you and yours in the lifestyle to which you've become accustomed (or any other lifestyle you may want to retire in). Once you've done that, you can sit down either with a retirement planning professional, or on your own, and make a step by step plan to achieve your goals.

Retirement Financial Planning Mistake #4 is funding other things ahead of your retirement. This is a common mistake, borne of parent's desire to see their children do better than they, or misplaced recreationally-oriented priorities (you bought a boat instead of maxing out your 401k). If you fund your kid's college fund at the expense of your retirement fund, all you're really doing is helping to ensure that your children will have the job necessary to help support you in your retirement years, because you won't have enough money. Better to not need their help and have them work their way through college like the rest of us. It will be far better for both of you, trust me.

Retirement Financial Planning Mistake #3 is using the “set and forget” approach to retirement planning. While there's nothing wrong with a buy and hold strategy when it comes to investing (Warren Buffett's done pretty well, after all), you want to revisit your asset allocation once in a while to ensure that your strategy is the most advantageous for the times. For example, technological, economic, political, and demographic shifts will make some industries have greater potential as times change. You want to be sure that you're taking advantage of this, or at least not getting caught heavily invested in dying or declining industries. You may also want to shift more of your assets from stocks to bonds to more closely match your investment requirements as you near retirement, for example.

Retirement Financial Planning Mistake #2 is common and very serious. It's starting too late. Learn from my mistakes here, please. The power of compounding is well known, but often ignored by young investors that have their priorities more closely aligned with this weekend, rather than what they'll be doing in 30 or 40 years. You're shooting yourself in the retirement foot with this strategy, however. As an example, if you're 25 years old and earn $40k/yr now, you can contribute 8% of your salary into a fund that earns 10% for the next 40 years. Assuming you et a 5% annual raise, you'll retire with a hair over $2.2 million. Making the same assumptions, but starting only 5 years later, at 30, and you'll have almost a million dollars less, just a bit under $1.3 million! If you stop and consider that people are likely going to live much longer, that money may have to last longer than you actually worked.

Retirement Financial Planning Mistake #1 is never starting or participating in a retirement savings plan at all. That's a sure way to find yourself on the opposite end of the wealth scale in your golden years. According to the U.S. Department of Labor, 25% of Americans who had an available 401K plan didn't participate in it. That's a financial tragedy that can keep wealth a distant dream you'll never have the pleasure of living. If you consider that many 401k plans include employer matching funds, you're turning your back on free money that can multiply your investment returns. Not too smart.

If you're just starting out, avoiding these top 10 financial planning mistakes. You can retire wealthy, the real tragedy is far too many people don't think they can do it, and so they're right. Remember (Debt Free Saying of the Day)

“Good luck is a created through the sacrifice of the persistent and the prepared.”

Posted by debtblog at 02:09 PM | Permalink | Comments (0) | TrackBacks (0)

The divorce rate in America is dropping, and is at its lowest level in years; 3.6 per 1,000 citizens as of 2005, down from its 1981 peak of 5.3 (hey, that's when my parents were divorced). In the year 2000 it stood at 4.2 per 1,000 and in 1995 43 persons were divorced per every 1,000 U.S. citizens . Of course the marriage rate is dropping as well, and you can't have divorce without it. The marriage rate in the U.S. is currently about 7.5 percent.

Interestingly enough, Nevada, the state with the highest divorce rate at 6.4%, also had the highest marriage rate, as you might expect. What is actually interesting though is that, due to the high number of insta-marriages in Las Vegas wedding chapels, the marriage rate in that state is over 60%, almost 9 times that of the U.S. average, but it gets even better. In 1990, the marriage rate in Nevada was an astounding 99%!

Washington DC has the lowest divorce rate in the nation, at 1.7% in 2004. Of course in 2004 Washington DC also had by far the highest murder rate in the U.S., at 3.6 murders per 1,000 residents. The murder rate in DC in 2004 was 3 times that of the next highest state, Louisiana, who was about twice as high as the rest of the country (source - FBI Uniform Crime Reports. ). Is there a correlation between the very low divorce rate and the very high rate of murder in DC? That's a subject for better minds than mine, but it does make you wonder a bit.

Another interesting bit of knowledge is that most of the marriage statistics were gleaned from the U.S. CDC, while most of the divorce stats came from the U.S. Census Bureau.. Why is the Center for Disease Control tracking our marriages?

Okay, so why discus statistics on divorce in a finance blog? Because a large number of divorces either cause serious financial problems, or are caused by financial problems. According to Associated Content, financial problems are actually the most common cause of divorce, with infidelity being only number two. Cheat on me, just don't spend my money without telling me.

Actually the problem of financial problems causing divorce is rooted in differing value systems. In many cases the two spouses have different fundamental beliefs about what's important, and how they should spend their disposable income. In many cases one or both spouses will spend in excess of their disposable income. For example the husband will think nothing of dropping $2,000 on a Browning Cynergy Classic for duck season, even if it goes on a credit card. On the other hand, the wife hits the Paypal account for a few pairs of Linda Pritcher pumps at $150 per.

Both spouses attach little value to the other's purchases, which leads to problems, especially if the new toys contribute to credit card debt. The stress of financial problems is compounded because neither party feels the other's purchases were warranted or have value approaching their monetary cost. Cynthia Cooper, Ph.D, marriage counselor and author says that 43% of married couples have marital spats over money and spending issues.

To avoid this she suggests open and honest communication. If expenses are agreed upon beforehand and both spouses sign off, many arguments and possible divorce can be avoided. Something else suggested by experts in the field is to set a spending limit above which purchases must be approved by both spouses. Below that amount, a set number of purchases may be made every month. If for example, the limit is $50, either spouse can buy one thing a month at or below this limit without getting the other's approval. Above this and both must pre-approve the expense. This goes a long way to avoiding financial problems and stress in a marriage and possible trips to the attorney later, and you know how much lawyers cost these days.

Another helpful tip to avoid financial induced financial stress in your married life is to do the same as many financial experts suggest for everyone; create a budget and stick to it. Having a budget will not only help ease financial stress in your marriage, it can show you where you're leaking financially so you can plug the leaks, and go on to a sounder financial footing.

Hopefully this look at statistics on divorce will help you. If you're one of those who doesn't need the information, so much the better.

Posted by debtblog at 01:55 PM | Permalink | Comments (0) | TrackBacks (0)

Apple Computer alum, best selling author, columnist, and speaker Guy Kawasaki has started a great, new concept in websites. It’s dubbed Alltop.com, and the premise is simple, but powerful. Grab the headlines, posts and stories from best websites and blogs all over the web. Put them in one place, all categorized for easy reference. It works great.

I’m honored that Guy has included this blog, Debt Free, to be included as one of the chosen. There’s obviously personal finance related content, but there’s really something for everyone. So, no matter what or how diverse your interests, stop by Alltop.com and take a look. It just might turn into one of your favorite stops on the web.

Posted by debtblog at 01:20 AM | Permalink | Comments (0) | TrackBacks (0)

Just how do you become a millionaire, anyway? On this day after the Forbes list of the world's richest people came out, it seems appropriate to discuss just how you could become one of them. In the first place, being a mere millionaire these days is no indicator of great wealth, although it's still the term thrown about the most when people (those that aren't, anyway) discuss being rich.

In fact, I remember an interview that was done a few years ago about retirement savings in which a young girl expressed amazement when the interviewer asked about saving a million dollars for retirement. She was of the mistaken opinion that she'd never need to save even close to that amount to comfortably fund her retirement. Apparently she'd either forgotten about the effects of inflation, was independently wealthy, or was planning on marrying up. Maybe she just loved the whole mountain tent decor and would be comfortable living that way.

In any case for many that have aspirations of attaining wealth becoming a millionaire is merely the first step in the process. Given that first step or not, one must get there at some point in the process, just how do you become a millionaire?

Besides winning it, or being given your million dollars, there are two basic paths you can take toward millionaire status. You can work for someone else and invest a portion of your income, or you can work for yourself and invest a portion of your income. Either way has it's advantages and disadvantages. In addition, there are countless combinations you can use to reach you goals within these two very broad avenues. To become exceedingly (is that even possible??) wealthy, you'll have to either:

A) Start your own successful business, then plan and execute an exit strategy that would include taking the business public or selling it for a substantial amount of money.

-or-

B) Work for a company in the early phases of its existence and be given a portion of the business that will be worth a substantial amount of money. This method worked well for many people in Sunnyvale, Redmond, Austin, Mountain View, and Cupertino. You can then invest the substantial windfall to become quite wealthy.

-or-

C) Get one of the few extremely high paying jobs with a salary and bonus structure such that you have a substantial amount of money left over to invest. You must then invest at a rate of return that will result in your extreme wealth. Not only must you land such employment and make the appropriate investments, but if you take this route, you must live fairly frugally in the wealth generation phase. It is hard for many to resist the pull to plunk down their new found money on a 8,000 square foot golf course home, a Bentley, and trips to Monaco for the Grand Prix every year. In many of these types of jobs, your peers will live with the trappings of wealth, and it can be easy to emulate their behavior.

Of those younger billionaires on the Forbes billionaire list, 68% of those under 40 years old made their money starting with nothing, so take heart, it can be done. Getting the mindset to actually achieve that level of wealth may be almost as difficult as getting that rich itself.

What about just becoming a plain old, garden variety millionaire? Thankfully, that is much easier, and doesn't really require too much beyond some basic financial planning and discipline. You need to make some good decisions about the direction of your life along the way. If you take the work for someone else approach, rather than starting your own business, you'll need to plan and execute a career path that affords you enough income to invest for retirement such that you'll reach a million dollars in assets, not including the equity in your primary residence. This can be easily done, and in fact, according to the most recent Merrill Lynch wealth report there about 9.5 million such people in the world.

For example, say you play around a bit in college, change you major a time or two, and don't graduate until you're 25 years old. Upon graduation, you get a decent, but not very high paying job, earning $35,000 per year with good benefits. If you plan to get only a 3% annual raise (less than the cost of living), put away 10% of your salary toward retirement (assuming no company matching, so it's not too great of job), and earn an 8% rate of return on your investments, you could easily become a millionaire. In fact you'll retire at age 65 with a nest egg of about $1.2 million. On this you can live with 97% of your last year's salary of $110,000 per year until you die at 90, and leave a $1.3 million nest egg to your heirs. You could even retire at 63 and just manage to eat up your retirement savings by the time you reach 90.

The above calculations assume you'll get a big, fat Zero for Social Security, because face it, for anyone under 35 now that could easily be the case. It also assumes a 3.1% annual inflation rate. Just how nice would an employer matching contribution be in the above scenario? If you were a bit more ambitious and received on average a 5% annual raise, you would retire with a $1.56 million nest egg at 65, so you would be a millionaire times 1-1/2. It may not seem like much, just increasing your retirement nest egg by such an amount, but in fact it's extremely powerful. Such an increase would allow you spend $150,000 per year in retirement, instead of only $107,000. Even spending almost 50% more, your retirement savings would still continue to grow, such that when you took your last breath at 90, you'd be everyone's favorite uncle, because you'd leave your heirs a $5.2 million present.

What if you didn't want to wait until you were in your 60's to become a millionaire? The majority of people would rather get there when they were a bit younger so they could enjoy the fruits of the labor. You better count on earning some great money and having a solid investment plan. If you start at the same $35,000 level, contribute 12% to your retirement plan, and can increase your income 10% per year, you can amass a $1.3 million fortune at age 55. The effects of increasing your income 10% annually are intoxicating. By age 55, you'll be pulling down $555,000 per year.

Can't wait until age 55? You will probably have to start your own successful business, be an extremely astute investor, or substantially up your retirement percentage. There are some keys to becoming a millionaire, to wit:

Do the following to become a millionaire:

1. Spend less money than you make. Frugality is paramount, unless your income is in pretty rarefied strata.

2. Invest what you don't spend. The power of compounding is the single most powerful fiscal tool at your disposal. Compound interest will make you a millionaire if you give it time to work, which segues nicely into the next key to becoming a millionaire...

3. Start investing early. Even if you don't put away much, start contributing something as early as possible. Use the tips from your high school restaurant job. Even a small bit of money invested as a teenager will have grown to a substantial amount later in life, and how much do you really need $100 now anyway? If you earned and stashed away only $100 a month starting at age 15, got a robust 10% return on your investments, and did nothing else to contribute toward your retirement, you'd reach millionaire status at age 60! That's on a simple $100 a month, but you have to start early. If you moved that 5 years to age 20, you would still reach $1 million at age 65. Starting at 15 however would have you at $1.75 million by 65.

4. Stay as close to debt free as possible. Debt carries interest. Unfortunately, debt has the kind of interest you pay to others, not the interest others pay to you. With the exception of your mortgage and car payments, you should strive to carry as little consumer debt as possible.(Debt Free, remember?) Paying interest on depreciating assets (basically all consumer goods are depreciating assets) carries with it a double whammy. You are essentially paying twice; the depreciation and the interest. You may also use debt to finance your education. Remember the value of your education is not only the higher paying career you'll likely receive, it's the relationships and the social network you build while in college. Your friends will go on to become captains of industry, politicians, judges, investors, statesmen(women), and journalists. Don't lose touch.

5. Buy a home. That is not always the smartest move in every market, but statistics don't lie. On the average nationwide, homeowners have a much high net worth than do renters. It's not even close. The average homeowner with an income in the range of $50,000 to $79,999 has a net worth of $195,000, while renters with the same income average only about $25K. In the income range of $30 to $50K, the homeowner has an even greater advantage percentage wise. Their net worth is 12 times higher; $126,000 to only $10,000. These stats courtesy of the Federal Reserve Board.
   

Don't do the following to become a millionaire:

1. Gamble

2. Spend more than you make

3. Amass large amounts of consumer debt

4. Skip college – There are a tremendous number of very successful people who never even attended college, much less graduated. You can have a great, and very profitable career in sales, own your own business, or a number of other avenues. The statistics are however, that college graduates earn far more than those who don't have a degree. Don't forget the networking aspects, as noted above.

5. Smoke – Not only will the health issues cost you money, time with family, and make you miss work, cigarettes are very expensive. If your smokes are $6 a pack, and you smoke 2 packs a day you spend $12 a day, 7 days a week. You opportunity cost by not investing the $360 a month is staggering. If you start smoking at 17, and die when you're 67 you lost plenty. That same $360 a month, invested at only 8%, would be worth $2.9 million! So, instead of watching that new BMW drive by while you're hanging outside the office on your smoke break, put it out and invest the money. That 535 could have been yours!

Posted by debtblog at 02:59 PM | Permalink | Comments (0) | TrackBacks (0)

So, how do you create a budget? The first thing you should do is to create categories for all your current and projected expenses. Make sure you include a category for emergencies. They always seem to crop up and you should budget accordingly. Start with your fixed expenses first. This should include rent or mortgage, any other fixed housing expenses such as taxes and insurance. If you have car payments, include these in the appropriate category. The same is true for any automotive related fixed expenses, such as insurance or monthly parking. If you have health insurance that you contribute to, or any other fixed expanses, create categories and include the appropriate expenses.

After you have created budget categories for all your fixed expenses, start creating budget entries for your variable expenses. These are expenses that are different every month, such as food, utilities, credit card accounts, and fuel. If you have copies of your recent utility bills, credit card statements and how much you’ve spent on gas, oil and maintenance for your vehicle, you can use these figures to help create a picture of what you can expect for your budget in the future.

Now comes the scary part. In order to create an accurate picture of your spending, you have to actually document every penny you spend. You may feel like a geek, but the only real way to accomplish this is to keep a journal. That’s right; you actually have to write down what you spend. This should include everything; gum, candy bars, cigarettes, lattes, drinks, trips to the Bahamas, whatever.

After you’ve documented every penny you spend, and categorized it appropriately for at least a month, you should have a representative picture of your spending habits. Certain things will not make into a 1 month spending journal. Recurring, but semi-regular expenses such as oil changes and tires can contribute substantially to your spending, but will often fall out of a 1 month spending journal due to their relative infrequency.

Look at your income for the month as well. For the majority of people this will consist of weekly or bi weekly paychecks. People that get tips, commissions or bonuses will have to do a bit more work to track their income, but tracking income is usually much easier than tracking spending.

After you have a fairly complete picture of how you come by your cash every month and where your money goes, the next step is to prioritize your spending. You should have your spending accurately categorized. Look at every budget category. Some of them will include money you really have to spend without much chance of reduction. Things such as a mortgage simply must be paid. Assign every category a priority from 1 to 5, with 1 being the most important. For example, your mortgage would be a 1. Go through all the spending categories you tracked throughout the month and assign the appropriate priority value. That will let you know where you can cut spending the easiest. If you’ve never actually tracked your spending before, you’ll probably be shocked at how much you spend on things such as gum, lattes, magazines, or any other seemingly insignificant expenses. These really add up in a hurry, but the bright side is that you may actually have way more money than you realize.

Now that you have prioritized all your money going out, you can create a budget. Assign an appropriate dollar amount to each category. Some of this will be effectively done for you, due to the type of spending. In other categories, you’ll have to come up with a figure that works in your particular situation.

Once you’ve created your budget, you’ll be able to find room for things such as investing and retirement savings that you weren’t able to afford before. That is the reason that a budget is so important for your lifelong financial success. It allows you to find the money that is slipping through your fingers and reallocate those funds toward making you financially secure.

Posted by debtblog at 01:43 AM | Permalink | Comments (0) | TrackBacks (0)

In this country it is relatively simple to retire rich. It is not however, as some (usually those that are trying to sell you something) would have you believe, an overnight process. That leads into one of the primary reasons why few attain wealth; lack of persistence. Too many folks simply don't stick with things long enough for them to be effective. I'll get back to the reasons people fail to generate or retain wealth later, now it's time for how to get there in the first place.

How to Get Rich #1
Generate multiple streams of income. Not only will this increase your income, but it will also protect it. Just as diversifying your investments mitigates risk, diversifying your income will guard against losing all of it. In this day and age of corporate downsizing and fiscal cutbacks, this is more important than ever. You can diversify your income in a number of ways, but some of the most popular and effective are starting your own side business and getting a part time job.

I'm much more partial to the business avenue. Another benefit is that you may find something you actually enjoy more than your current job, and eventually become quite successful at it. The problem is that too few people ever pursue income diversification, and of those that do, few have enough persistence to taste much success.

How to Get Rich #2
Invest regularly. This is common sense and really a no brainer. It's standard teaching from financial advisers the world over. While this advice is followed by far more people than the number that choose to augment their incomes by adding other income streams, it is nonetheless ignored by a significant percentage as well. If you ignore the principle of compounding interest, it will be tough to get rich or retire that way.

How to Get Rich #3
Avoid excessive consumer debt. People carry excessive debt and are not leveraging the debt they have to produce any income or asset appreciation. In addition, much consumer debt tends to bring with it very high interest rates. These interest payments will conspire to drain your financial resources. It is relatively easy for your consumer debt payments to reach a point where they negate any ability to contribute to your investments.

How to Get Rich #4
Educate yourself financially and take control of your finances. Far too many people are simply along for the ride when it comes to their finances, and many that take an active role in their personal monetary policy have insufficient grasp of how things work. This makes them not as effective as they could be at best, or at worst, they can be extremely decremental to their financial position. Few people have any formal financial training, and although some people take steps to learn on their own, statistics point to a frightening level of financial ignorance. Here are some of the statistics to which I'm referring:

A) A poll of mortgage holders by Bankrate.com found that 34% were unaware of what type of mortgage they have. Although recent publicity of the mortgage and credit industry problems may have lowered this number somewhat, it's mind boggling that it was ever so high.

B) A recent survey in the UK found that 79% of people did not know what the term APR meant, and 25% were unsure how much money they spent every week. I doubt the numbers in the U.S. are much different.

How to Get Rich #5
Reprioritize. People choose “living now” now over financial security. This thinking is especially prevalent with younger people, many of whom have a hard time imagining life when they are older. Take it from someone who had that same mentality; you'll most likely get there, and you won't be so happy with what you see in your retirement accounts. While partying, buying toys such as motorcycles, boats and Jetskiis, taking flying lessons, skiing 4 days a week, and traveling to fun and interesting places is definitely enjoyable, you need to balance the amount of resources you commit to such things against those that you target toward freedom later in life.

Having a good time, bonding with friends, and seeing the world should definitely be done, but balance that with your ability to enjoy life later. Retiring secure at 55 is a worthy goal, while working insecure at 70 is not. Sadly, most people aim for the former, but only do what it takes to achieve the latter

Posted by debtblog at 03:39 PM | Permalink | Comments (0) | TrackBacks (0)

Since it's online, you can access it from anywhere, giving a very convenient way to manage all aspects of your personal finances. You can see at an instant where all of you money is, and more importantly, where it's going. It's nice because you can do this from anywhere. If you are active, as so many of us seem to be these days, that is very nice. I know between work, business, and the kids, it seems like I'm in 20 different places every day. We've been using Quicken's business software in our businesses for years, and I know why it's the most popular small business accounting package. It looks like they've developed a similarly thorough and easy to use package for online use.

To help introduce Quicken Online, they're offering a 30-day free trial. You can get the free Quicken Online trial here. Another timely special offer is a $25.00 savings on a Quicken / Turbo Tax bundle. If you do your taxes yourself, or would like to start this year, this is just in time. You can get the special bundle savings offer here.

Posted by debtblog at 01:50 PM | Permalink | Comments (0) | TrackBacks (0)

Financial New Year's Resolution – 1 – I'll make more money this year.

This has got to be one of the most popular when it comes to financial new year's resolutions; make more money. Sounds great on paper, but in order for you to actually accomplish your goal, you have to have one; a goal that is. It's hard to achieve a goal if you have no quantifiable target to shoot for. So, that should be step number one, set your income target. Not only does this give you a psychological goal to achieve, but there are different ways to achieve your goal of making more money depending on how much more money you'd like to make.

If your goal is a 10% increase in income, you can probably achieve that by getting a raise at work, working extra hours or starting a small business on the side. If, on the other hand, you'd like to double your income, that will take a very different strategy for most people. To achieve an increase in come of that magnitude for the average person will take a specific plan (and it better be a good and thorough plan) and a Hurclean effort on your part. Even then, a doubling of your income in a single year may not be a realistic goal for you to achieve. The plan will be different for every person, depending on their situation, skill set and personal strengths. You want to formulate your plan to take advantage of your personal strengths and mitigate your weaknesses. To increase your income by 100%, unless you make very little, or no money now, you'll have 2 basic choices; start a successful business, or change careers.

Keep in mind that realistic goals are different for each individual. What may be realistic financial goals for one person may be completely out of reach for another. You should set your goals high, but be realistic. If you are one of those that responds well to personal challenges, setting your goal of a 100% increase in income may be just what you need to drive yourself to actually achieve it. If you are one who is easily discouraged, maybe a bit of restraint is in order here. You want to set your goal such that you can see the light at the end of the tunnel even if you fail to achieve it after putting forth a solid effort by the new year's end.

For those of you who think the economy is a faltering ship about to run aground, you can keep running around shouting “Woe is me”. For the rest of you, remember that there is always opportunity in any situation. It's your job to find it, and determine how best you can capitalize on it when setting your goals for this new year. A report by CNN money last year found that the number of millionaires in the U.S. (excluding equity in primary residences) is at a record 8.9 million. If you want to be one of them, it's time to saddle up and get moving.

That is the second part of your strategy to increase your income. You actually have to implement whatever plan you've set for yourself. One of the major reasons people never achieve their goals, is that they don't actually take the initiative to take the first step. Once you've initiated the process, keep at it. Persistence is the next ingredient in the recipe for financial success. For every millionaire who lucked into their fortune, I'll show you a thousand who kept at it until they reached their goal.

Financial New Year's Resolution – 2 – I'll become debt free this year.

Becoming debt free is certainly a laudable goal. Weather or not it is actually desirable is open to debate. There are two schools of thought in this area. One states that personal debt freedom is to be achieved at almost any cost. The second is more along the lines that personal debt should be managed and used as a tool to achieve financial success. Keep the interest rate on your debt low, and use it for investment to grow your wealth. For each school of though on debt, debt freedom has a different meaning. In the first it mens just what it says; you'll have no debt. In the second, your debt will be leveraged to produce investment and/or income growth. Following the second requires that you keep the interest rate on your debt lower than whatever rate of return you're achieving on your investment.

As with increasing your income, achieving debt freedom requires a concrete plan in order to ensure success. In fact, increasing your income may well be part of your plan to eliminate your debt, but to give yourself the best chance of success in this area, you should plan on debt reduction without any increase in income. Debt reduction is a matter of careful planning and fiscal restraint. Spending less than you make is vital, yet one of the most difficult parts of the process for many. In a 2005 report, Dow Jones lists poor money management as the number three cause of excessive debt, and in fact if you spend more than you make for any extended period of time, you are 100% guaranteed to end up among the indebted. Here is one of my previous posts on debt cures and how to determine if you have any of these debt warning signs you should be aware of.

Financial New Year's Resolution – 3 – I'll increase my credit score this year.

With all the troubles we've seen in the last 6 months in the credit markets, raising your credit score is more important than ever before. Your credit score is used by the financial industry as a barometer of your overall financial health, and like a life insurance company looks at your health by demanding a checkup before you get life insurance to determine their risk and your payment, your credit score will determine in some way how much you pay for, or if your get, many things in your life from cars and homes, to insurance and jobs. It's vital therefore to raise your credit score to its highest level. Reference my previous posts on common credit problems that can hurt your credit score, your credit report, and improving your credit score. Here is another technique you can use to improve your credit score. You should begin this process right away.

The point to remember when improving your credit score are:

1 – Pay your bills on time. This is huge. Late payment over 30 days have a dramatic, negative impact on your credit score. Those late payments in the past 24 months have the greatest effect on your score.

2 – Keep your credit card balances low – That will improve what the credit industry terms your “credit utilization score”, or your ratio of credit maximum to credit used.

3 – Don't close credit card accounts, pay them off. Closing an account will eliminate an account that has history, and the length of your credit history is one of the prime determining factors in your credit score.

4 – The length of your credit history is another reason to keep the number of credit cards to a minimum. The more new credit cards you get will not only tempt you to spend on credit, but more new cards will lower the average age of your credit accounts, thereby lowering the average age of your credit history, and your score.

Hopefully these can help you start off the new year on the right financial foot.

Posted by debtblog at 03:01 PM | Permalink | Comments (0) | TrackBacks (0)

That’s great news, I don’t want just anyone grabbing their share of my share that I worked until May for. However, it also smacks of favoritism, something the Feds excel at. Perhaps the best known government grant programs are for students. If you ever went to college, there’s a good chance you were a beneficiary of a Pell grant or knew someone who was. There are also many grants available for small business; either to start or grow them. In fact, the majority of government money is used for this purpose. Nearly 60% more money is allocated for small business grants than for education grants.

The government also doles out grant money for research and development, minorities, women, and community development. Your first step is to find a grant that offers money for exactly what you’ll be using it for. There are, as I noted above, numerous examples. If you are a n actual 501(3c) non-profit you’ll have the best chance, but you can get money as a plain Joe/sephine also. The key to getting government grant money is to request the grant for a specific purpose that falls within the narrow requirements the specific grant program is looking for. The other factor is to write the grant request exactly as the bureaucrats would like to see it. You need to conform exactly to their expectations, and use the proper language, if you would like to see any money from Uncle Sam.

What goes into writing a government grant request?  You’ll need to write a cover letter first. Inside the request you’ll need to demonstrate you, or your organization’s need for the funds. You’ll have to show a use plan to explain exactly how you’ll use the money as well. If you’re really lucky, the agency offering the grant will have an application form for you to fill out. Otherwise, you’ll have to remember what you learned in your creative writing classes back in college. Some of these apps can be real whoppers too, so limber up your typing fingers.

There’ll be a grant application kit you’ll have to get from the government agency offering the grant. In it will be everything they’ll require to give you the best chance of prying the money out of their clammy paws. There may be a template that will be very specific in what the agency is requesting. Some of the more common information required by the template will include who’s applying for the grant, a detailed description of the project the grant will be used for, how much grant money is being requested, a timeline for its completion, what contribution the requestor will make toward the project, how the project will benefit the grantor, and personal/contact information for key members of the team.

There will most often be a list of deliverables the granting agency will be expecting, so you’ll know just what to documents and data include, and how to organize them.

One last thing; don’t be picky. There are often multiple grants available from the same and different agencies that you may be eligible for. You should apply for every last one of them in order to maximize your chances success. It’s easy to be debt free if your money was free, just don’t waste it.

Posted by debtblog at 03:32 PM | Permalink | Comments (0) | TrackBacks (0)

1)      The odds are piss poor. In fact, if you’ve driven more then 10 miles in search of your ticket, you are far more likely to be killed on the road to buy your ticket tan you are to actually pick a winner. Actually the odds of dying in a traffic accident on a 10 mile trip are almost 3 times higher than the odds of you winning a Lotto jackpot.

2)      Over 50% of all lottery tickets are purchased by just 5% of those playing the Lotto games. Amazingly enough these same people actually could become rich the old fashioned way; saving and making regular contributions to their retirement accounts, investing in value and dividend paying stocks, and owning income producing real estate. You can fool some of the people…..

3)      Sadly, 25% of Americans are under the assumption that the Lottery is their best chance to become millionaires. In reality that’s far from the truth, but then, you already knew that.

4)      Many states don’t have your best interests at heart when they implement Lootteries. One report from Ohio indicated that the advertising for the state’s lottery was timed to coincide with the residents receiving their benefit and Social Security checks.

5)      The State of New Mexico actually spent taxpayer money on commissioning a study titled “A Critique of Lottery Critics” to explain why the critics of the state’s lottery are all washed up.

6)      A statistician from the University of Toronto discovered, after some study in 2006, that the winning percentages of sales clerks at places that sold Lottery tickets was much higher than for the general public. Some have even been arrested or stealing elderly customer’s tickets. Things that make you go mmmm…

Posted by debtblog at 07:33 AM | Permalink | Comments (0) | TrackBacks (0)

Even if Social Security were going to be just fine, it merely provides an anti-destitution safety net. It doesn’t provide adequate income for a comfortable retirement. That’s up to you. Here are the three most important things you can do to make sure you live in the style to which you’ve become accustomed.

Number 1 Most Important Thing When Retirement Planning for Those Under 30 - Start Now

That is by far the most important thing the average person can do to help make sure they don’t live in a Maytag box down on 2^nd when they get older. Due to the extremely powerful effects of compounding, the length of time you let you money grow will do more than almost anything else to determine the size of your retirement accounts. The rate at which you’ll have to save for a secure retirement will double if you put off starting you saving from age 25 to age 40. That’s a lot of money every month, so think twice before avoiding those deductions.

Number 2 Most Important Thing When Retirement Planning for Those Under 30 – Readjust your perceptions.
A million dollars isn’t what it once was and by the time anyone who’s now under 30 reaches 65 – 70 years of age, it may only be enough to buy a new Honda Accord and a tank of hydrogen. I heard a radio survey a few months ago where they asked some 21 year old about retirement. She actually said “A million dollars? Why do I need that much?” Obviously the effects of inflation were lost on her. She may not have taken into account.

To see how much you’ll need for a comfortable retirement, you’ll want to take into account that money will have lost much of its current purchasing power in 40 years. That $1,000,000 in 40 years, if inflation averages 6%, will be the same as about $97,222 today. I don’t think too many of you would feel safe retiring with only $97,000 stashed away.  If inflation does average 6% (A bit high by current standards, but better safe than sorry. You never know, we could get another president like Jimmy Carter, then all bets are off), you’ll need far more than you do now to adequately fund your retirement. For example, let’s say you want to retain 80% of your pre-retirement income, you’re now 25 and grossing $42,000/ year, you assume an average 5% raise every year, and you plan on retiring when you’re 65. This assumes you never get that big promotion, start a successful business, or otherwise dramatically increase your income. How much would you need to have in your retirement accounts to make that happen?

If your retired today, and wanted that 80% of your income (which would have grown from $42,000 to about $89,000 assuming your annual raises), you’d have to earn about $71,000 a year from your retirement funds and Social Security (fat chance). Said funds would have to have grown to $785,000 in today’s dollars. Now, if you project that forward 40 years, to earn the equivalent of that $71,000, you’ll need about $232,000 a year. To get your $232,000, your nest egg will need to be the equivalent of today’s $785,000, which will be $2,561,000. So, you can see that a mere million dollars will not cut it.

Number 3 Most Important Thing When Retirement Planning for Those Under 30 – Make it automatic. There are two reasons to make regular deposits into your retirement accounts automatic. The first is financial, the second, psychological. Financially, you need to make regular contributions because it’s hard enough to save an adequate amount to fund your retirement accounts even when contributions are automatic.

Psychologically you must do this because it weans you from dependence on that portion of your income, and engenders confidence as you see your retirement account regularly growing larger. If the contributions are not automatic, it’s all too easy to divert a payment or three every year as other financial diversions occur. It goes without saying that you should take advantage of every cent of your employers matching contribution if they offer matching. It is, after all, free money! By making regular, automatic contributions, you’ll also enjoy the benefits of dollar cost averaging that will add to the power of your savings.

Number 4 Most Important Thing When Retirement Planning for Those Under 30 – As I’ve said regarding other financial and business endeavors, you’ve got to have a plan. You should have a plan for retirement as well. (That’s why they call it retirement planning) You’ll probably make deviations to it as financial and family conditions change, but at least you’ll have a roadmap of where you are starting and where you want to be at the end of your journey. If you must adjust your route along the way, so be it.

When you do your year end financial review, take a look at your plan and reevaluate it. Are you still on track to meet your goals? Are they still the same? Maybe you’d like to retire earlier or live better in retirement? Perhaps you’ve decided that material things aren’t all they’re cracked up to be and you can, in fact retire with much less.

Posted by debtblog at 12:23 PM | Permalink | Comments (0) | TrackBacks (0)

It would be nice to make that number even smaller without taking food out of their mouths, compromising their medical care or education, or foregoing family outings to Disney Land. That being said, many children actually cost their parents far more than that. That’s because the growing trend in America, and probably other countries around the world, is for children to be supported by their parents far beyond 18 years of age. Many parents pay for all or part of their children’s college education and their living expenses while they’re in college. Still other kids just don’t seem to move out until they’re 21, 22 or even later. Parents give these kids autonomy, food and cheap or no rent; what’s their incentive to leave?

If you’re a parent paying for some of these post-adolescent expenses, they can cost you as much as the first 18 years. If your kids are going to college, you could at least hope they’ll get a great job upon graduation. According to a Money Magazine survey taken last month, the most lucrative college degree was Chemical Engineering. Average salaries for recent Chem E grads were $59,361.

For those not able to foot the bill to attend MIT or CAL Berkeley, U.S. News’ top ranked chemical engineering schools, a great choice would be the number 3 school, University of Minnesota in Minneapolis. A year of tuition and fees for the coming academic year, assuming you’re a resident of MN or one of the neighboring states, is about $10,000. To this you’ll have to add all other associated expenses such as books, food, lodging, insurance, car and maybe a few cents for entertainment. Figure you’ll spend about $20,000 for every year junior studies chemical engineering at U MINN. It could easily take 5 years to graduate from such a grueling program, so there’s $100,000.

Here are some ways you can ease the financial pain of your loving children, weather they seek high education or just sponge off you for a while. Tons of stuff has been written about how to save money on your younger kids, from shopping at thrift stores to encouraging hand me downs from friends and relatives. Here’re some ways to save when they’re a bit older.

1 – Save Money on Your Kids – Give them some in depth, personal, financial education. Few high schools offer any sort of education on personal finance, even though one could argue it’s one of the most important life skills, certainly more important to the majority of kids than wood shop or ceramics.

Due to poor results of national personal finance tests given to some of the nation’s high school students last year, this may change in the future. Some legislators are on board with a push to get schools to offer personal finance education. With the impact this could have on our national economy, it would seem logical that more legislators would take up this cause (probably why some are having trouble doing so). In the event this push takes some time to gather momentum, it may be incumbent upon you to give your kids this knowledge on your own. The money they save will be your own.

2 – Save Money on Your Kids – Encourage entrepreneurism in your kids. One way to save money on your kids is to get them to make some, preferably a lot. In addition, this will help tech them money management and business skills that will serve them, and you, later in life. Who knows, they may even do well enough to hire you!

3 - Save Money on Your Kids – Set an example for them to follow. If you’re always spending, guess what? Right, they’ll grow up with those same talents. Instill values in them early on that include fiscal responsibility and saving money. Although that bit of advice may sound like moralistic preaching, it’s actually very self serving. Would you rather they save money, or ask you for some?

4 – Save Money on Your Kids – Teach them well so they stay on the straight and narrow. Again, this may come across as moralistic preaching, but think of how much it can cost you if your little hooligans get in trouble. You could be out a small fortune. Attorney’s fees, fines, court appointed classes, restitution, etc. could all conspire to suck your retirement fund dry.

This is even more important due to a trend toward fining and otherwise legally penalizing parents for their children’s mistakes concerning the law. So even though you may say “If they get in trouble, I’ll make them pay their own court costs and fines”, this won’t matter if the judge fines you. Get them into sports or other activities to keep them out of trouble.

Posted by debtblog at 01:56 PM | Permalink | Comments (0) | TrackBacks (0)

Just as an exercise, I’ll use the 2007 Toyota Camry, America’s best selling car. It’s pretty representative of a nice, but not too nice, family sedan. The Toyota may fare better than many other vehicles due to its excellent resale value, which limits your losses to an extent.  I used the Camry SE, which is the middle of the 5 different trim levels offered by Toyota. I choose the 4 cylinder engine over the pricier 6 cylinder power plant, but did choose the automatic transmission, which is the way most Camry’s are sold. The price for the vehicle so equipped is $20,180, including destination and handling charges. Any applicable taxes aren’t included.

According to Toyota Financial Services, there is a special, 3.9%, 60 month financing offer in place right now, so I’ll use that for this example. That, of course, assumes you’d qualify for the special financing. If you traded in a paid off vehicle (you just lost even more money, but just try and sell a car these days) and received a $5,000 trade in allowance, you’d be financing $15,180 (plus taxes and licensing, of course). As an example, a 1999 Camry, in good condition, with a 4 cylinder engine and automatic transmission, a CD player and 85,000 miles has a Kelley Blue Book trade in value of $4,750.

Making all the above assumptions, your payments would be $278.88 per month. Amortized over 5 years, you’d pay $1,552.70 in interest. Your total of payments would be $16,672.70. In 10 years, if the 2007 Camry has depreciation similar to a 1997 Camry, it will be worth roughly $5,000. According to the Feds, the average operating cost for a car per mile for maintenance, gas and oil in 2006 was 16.1 cents per mile. If a 4-cylnder Camry is 25% better than that, you can expect to pay about 12 cents a mile. If you put 90,000 miles on the Camry over the next 10 years, your operating cost would be $1,080 per year. Figuring $1,400 per year for insurance and licensing, your total outlay for the next 10 years would be $41,472.

If, instead of trading it in on a new Camry, you sold the 1999 Camry and took the bus for the next 10 years, you could expect to receive about $6,380 in proceeds from the sale. If you spent $35 a month for a bus pass, you’d be out $35 every month, but it’s a far cry form the operating expenses incurred by a car.  If you put the $6,380 and the $1,080 annual operating costs, plus the $1,400 annually for insurance and licensing, into a mutual fund (minus the $35 a month for the bus) that returned 8%, you’d have $45,628 in your mutual fund. If not, you’d be the proud owner of an $87,100, 10 year old Toyota Camry! Not the best way to get debt free.

Posted by debtblog at 02:31 PM | Permalink | Comments (0) | TrackBacks (0)

I've got a few articles in carnivals this week. My post on Alternative Investing is over at the Carnival of Long Term Investing at Forex Reader. Check out the carnival for some great investing posts. That post also appeared in the Festival of Stocks That's definitely worth a read as well. Head on over.

Also, see the Carnival of Money Stories over at Sushi Money, where my post on How to Avoid Credit Card Fraud was included.

Posted by debtblog at 03:40 AM | Permalink | Comments (0) | TrackBacks (0)

What it does mean is that our society is so litigious someone should sue us just for being stupid. Many of these lawsuits should probably be thrown out before they are ever allowed to proceed. That’s not to say that there are many legitimate needs for lawyers. We do live in a very complex society after all. Not all lawyers are the stereotypical shyster either. Many are great people. Mine’s a fantastic person, in addition to being voted one of the best attorneys in the state by his peers. He’s seen a great many things in his life and has given me fantastic advice on many things outside of the law.

Why the hell am I even bringing up the whole thing? It all points to the need for asset protection. This is especially true if you are a physician or own a business. If you’re a landlord, you really need a solid asset protection plan. Make sure you find an attorney that specializes in such matters. The last thing you need is to work your fingers to the bone for years, building your business or real estate portfolio, only to have it taken away in the blink of an eye. In many cases your business structure will preclude you from losing your business, although your personal assets will still be at risk. Even if you manage to retain most of them, a substantial portion could be eaten up by large legal defense costs. You should protect yourself. The larger your asset base, the greater your need to protect it.

One of the most common asset protection strategies is the use of a trust. Placing your assets in a trust will basically take the ownership away from you and give them to another legal entity. Once they are no longer yours it’s much more difficult for them to be taken away. One caveat here; if you wait until you’re think you are about to be sued, it’s probably too late. You’ll probably run afoul of fraudulent conveyance laws.

Something else to be aware of are scam artists that exist here, as it seems they do everywhere. Some things to take under advisement –

* In most cases you must lose a judgment in order to lose your assets. Of course the IRS knows no such restrictions.

* Most U.S. judgments are not recognized overseas.

* If someone tells you you’ll get huge tax benefits from asset protection plans, look out. While possible, in most cases this substantial tax benefits are unlikely.

* There are some asset protection consultants that aren’t licensed attorneys. Be aware that in many cases they don’t have the expertise required for this type of work. In addition, because they aren’t lawyers, there’s no attorney / client privilege, and thus no confidentiality under the law.

Posted by debtblog at 08:38 PM | Permalink | Comments (0) | TrackBacks (0)

If you are just graduating from college, chances are you have many things on your plate. Obviously everybody's situation is a bit different, financial and otherwise. If you're just Joe/sephene average however, I'll assume you make an average salary for a recent college graduate. For 2005 a business graduate with a bachelor's degree the approximate average was $42,964, if you majored in computer science - $49,585, nursing $61,276, communications $31,517, engineering $51,053, and education $29,332. All salary figures drawn from the 2006 Job Outlook report. It sure pays to be a nurse.

The average of these figures is $45,337, so I'll use that figure for analysis purposes. If you were making the average graduate salary of $45,337, should you start an emergency fund equal to 6 months worth of living expenses? I say no, and here's why. In the first place, you are betting a fairly large sum of money that you'll have an emergency. By doing so you are probably failing to fund your 401K or other retirement vehicle to the fullest extent you could. That means, in the case of a 401K, there's a good chance you're leaving your employer's matching funds on the table. Bad idea. That's free money, and you know how hard it is to come up with that.

By funding your retirements and other investments early, you are taking maximum advantage of compounding, the financial principle that will make your retirement fun and enjoyable, much less possible before you're 80. Many of you have probably seen the figures that if you save money for 10 years and then stop saving, you'll be forever ahead of someone else that begins saving when you stop, then contributes money for 20 years. That's the power of compounding. Here's a review, which ignores the benefits provided by an employer match.

If you assume 8% interest compounded daily, and a $500 monthly contribution, after the initial 10 year period, you'll have $91,921. After 20 more years of no contribution, that grows to $455,208. If you had a really good time and spent your $500 a month for the first 10 years instead of making your investment contribution, here's how you'd end up.

After 10 years, you'd obviously have nothing but memories. After 20 years of saving, you'd have only $296,477. If you went 10 more years, but upped your monthly contribution to $1,000, you'd end up with $843,606 in your retirement account, 40 years after you left college. If you were trying to catch your friend that started putting away the $500 per month right after college by doubling your monthly contribution, it would be in vain, however. If you just did the 10 year contribution plan at $500 per month, you'd have $1,012,994.97 at the end of the 40 year period.

That's one reason that I'd say that if building up your emergency fund means cannibalizing your retirement account, you're just ensuring an emergency in retirement by preparing for an imminent emergency now. If your emergency fund was earning the current money market account average interest of 3.66%, you'd take over 3 years to establish an emergency fund with $20,000 for 6 months of living expenses. If you kept that in a money market account for liquidity, but made no more contributions, you'd end up with about $79,000 at the end of 40 years, assuming the same 3.66% interest rate. How much does that cost you? Sit down.

You now have only 36-3/4 years to save before your 40 year retirement begins. If you still saved for the 10 years at 8%, then sat on it for 26-3/4, you'll be left with $781,093, plus the $79,000 in your emergency fund, for a total of $880,093. That's a $132,000 loss from where you'd have been without the emergency fund diversion. There's your emergency, Bucko. My personal feeling, and you may or may not agree, is to ditch the emergency fund, or at least have a much smaller one, say $2,500 - $3,000, and fully fund your retirement accounts. That would keep you from having to dip into credit cards for things such as car repairs, If you truly have an emergency, you can find an alternative source of funding. If it means you end up with some high interest debt, that would be regrettable, but chances are that won't be the case.

That doesn't even touch on the possibility that the establishment of an emergency fund could keep you from buying a house until some years down the road. In most cases, owning a home will add to your retirement assets, instead of enriching a landlord somewhere (you should become one of those, eh?). This is all just my personal opinion, and I'm not a financial adviser, but I definitely have at least $.02.

Have a great week end.

Posted by debtblog at 02:16 PM | Permalink | Comments (0) | TrackBacks (0)

In a move that could surely affect your finances if you're either in college, or have a dependent for whom you'll be footing the college bill, Congress passed revisions to federal student aid programs by a margin of 273 to 149. What's changed?

They have eliminated over $19 billion in federal subsidies to loan providers. Despite 11^th hour appeals to congress by lobbyists, the deal passed by a fairly wide margin. Under the new plan, lenders will exist in a competitive environment, having to actually bid for loans in government auctions. Lenders who accept the lowest subsidy amounts will win the loan contract. It's kind of like Lending Tree for student loans. The loan auctions are separated by geographic regions and educational institution. Lenders have been under fire in recent years for several practices, including the offering of cash and other incentives to educators and institutions in exchange for business. It seems they have a system similar to that of the lobbying industry and congress. Perks for props or therabouts.

The $19 billion will instead be used to cut student loan interest rates and subsidize the college education of low income students. Bush has threatened a veto, but earlier this year, the Bush administration proposed $16 billion in subsidy eliminations, with the savings to be used for similar purposes. His reasons for the veto threat? The president would like to see more direct funding for student grants. In addition, he feels the new program will set up more expensive government programs. Amazingly, Congress doesn't seem worried about more expensive, government programs. In Feburary, President Bush approved an approximate 5% increase in the Pell grant maximum award, the first such increase in 4 years. Doesn't seem like the Pell Grant program has a COLA provision, does it?

Sallie Mae (SLM) is the country's biggest student loan provider, and has been in negotiations for a buyout deal worth about $25B. The news of the new subsidy slashing could endanger the purchase. Sallie Mae shares (hope you don't have any) dropped almost 10% on the news of the Congressional action.

Posted by debtblog at 01:55 PM | Permalink | Comments (0) | TrackBacks (0)

1 – Taxes. Hard to avoid, those nasty taxes. Remember when setting a budget they can add 10% onto every purchase, depending on where you happen to be. Sales taxes, B&O taxes, property taxes; you know the drill. They either take away from your bottom line or from your purchasing power, so don’t forget to include the effects of taxation when setting your budget.

2 – Parking. Just going downtown for that big sale? What about a game? Well don’t forget to add $10 - $15 to you spending total for the day, depending on the city you’re out spending money in, so you can have the privilege of parking your vehicle.

3 – Miscellaneous charges – As I noted in my post on Monday, you’re often hit for miscellaneous charges on things such as car repairs, and you can sometimes get them reduced or eliminated. This practice isn’t limited to car repairs however. Contractors and other businesses frequently use them as well. If they are on the estimate or contract up front, that’s one thing, but if they mysteriously appear on your invoice at the end of the job without your prior knowledge, raise a fuss.

4 – Tolls – If you’re from the northeast, you figure these in automatically, but for those in the rest of the country or Canada, you may not count on the occasional toll that can add $1 - $5 to the cost of your trip that you hadn’t figured into your budget. As more state and county governments try to find the money to pay for construction costs that are spiraling out of control (In large part due to the ridiculous number of costly studies that must be performed on any transportation project these days. Enough is freakin’ enough, already!), expect to see tolls on more roads and bridges throughout the country in the future.

5 – Parts and Maintenance – You may expect to pay maintenance costs for your vehicle, but in reality, you’ll probably have to do so for many other things as well, such as your appliances, computer and TV. For example, when buying a laptop, don’t forget that over its lifetime chances are good you’ll need to buy at least one battery, maybe more. Have you priced a laptop battery lately?

The same is true with many digital, rear projection TVs. Those of the DLP variety, both rear projection and front projection, will require an expensive bulb every 2,000 to 8,000 hours, depending on the specific model. (There are a few models that will not require this, because they use LED light engines rated to last for the life of the set. Two of these are from Samsung and NuVision. An added bonus is instant start up times.)

There is a chance many of your appliances, such as your dishwasher, will need at least one repair during its lifetime. You can help reduce these costs by doing a bit of research on the Internet before calling the Maytag Man out for a visit, unless you really need the company. Many problems are common with a particular model and are fairly easily fixed by someone with a modicum of ability. If your dad’s a TV repairman and you have the ultimate set of tools, so much the better.

When choosing a new job, keep in mind things such as transportation and other related expenses that may reduce your take home pay. If you need to park in a downtown parking garage for instance, that could cost you $200 – $300 a month. If you have to seriously upgrade your wardrobe, especially of it will now require dry cleaning, don’t forget to include those costs in your financial analysis.

Just remember when making a purchase, planning a trip, or choosing a new job that there will be those little, associated costs that can really add up.

Posted by debtblog at 02:47 PM | Permalink | Comments (0) | TrackBacks (0)

“How can you make a small fortune in racing? Start with a large one.” - Unknown
“A full purse never lacks friends” - Chinese proverb
“The great question is not weather you have failed, but weather you are content with failure” - Chinese proverb

“I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over. “ - Warren Buffett
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. “ - Warren Buffett

“Good management consists in showing average people how to do the work of superior people. “ - John D. Rockefeller
“I do not think that there is any other quality so essential to success of any kind as the quality of perseverance. It overcomes almost everything, even nature. “ - John D. Rockefeller
“I would rather earn 1% off a 100 people's efforts than 100% of my own efforts. “ - John D. Rockefeller

“People who are unable to motivate themselves must be content with mediocrity, no matter how impressive their other talents. “ - Andrew Carnegie
“No person will make a great business who wants to do it all himself or get all the credit. “ - Andrew Carnegie

“When you innovate, you've got to be prepared for everyone telling you you're nuts. “ - Larry Ellison

“A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large. “ - Henry Ford
“Before everything else, getting ready is the secret of success. “ - Henry Ford

“Even if you fall on your face, you're still moving forward. “ - Victor Kiam
“Information is a negotiator's greatest weapon. “ - Victor Kiam
“You can hype a questionable product for a little while, but you'll never build an enduring business. “ - Victor Kiam

“Going to work for a large company is like getting on a train. Are you going sixty miles an hour or is the train going sixty miles an hour and you're just sitting still? “ - J. Paul Getty
“If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem. “ - J. Paul Getty
“No one can possibly achieve any real and lasting success or "get rich" in business by being a conformist. “ - J. Paul Getty

“People want to build new circuits around the world and they say: 'We'll come to Silverstone and have a look how it's done', and I tell them to stay away. “ Bernie Ecclestone

“Good will is the one and only asset that competition cannot undersell or destroy. “ - Marshall Field
“A man with a surplus can control circumstances, but a man without a surplus is controlled by them, and often has no opportunity to exercise judgment. “ - Marshall Field
and perhaps Marshall's most famous quote: “Right or wrong, the customer is always right”

“An overburdened, overstretched executive is the best executive, because he or she doesn't have the time to meddle, to deal in trivia, to bother people. “ - Jack Welch
“Control your own destiny or someone else will. “ - Jack Welch
“The essence of competitiveness is liberated when we make people believe that what they think and do is important - and then get out of their way while they do it. “ Jack Welch
“The Internet is the Viagra of big business. “ - Jack Welch

“Be a yardstick of quality. Some people aren't used to an environment where excellence is expected. “ - Steve Jobs
“Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations. “ - Steve Jobs

“Hey, I never told anyone to buy my stock! Besides, no one is less happy than I am with the performance of Microsoft stock! I've lost tens of billions of dollars this year-if you check, you'll see that that's more than most people make in a lifetime! “ William Gates III
“640K ought to be enough for anybody. “ - William Gates III
“I believe that if you show people the problems and you show them the solutions they will be moved to act. “ - William Gates III - Note: This is the true essence of marketing.

“I'm sorry that we have to have a Washington presence. We thrived during our first 16 years without any of this. I never made a political visit to Washington and we had no people here. It wasn't on our radar screen. We were just making great software. “ - William Gates III

“You look for stars. You look for the makeup of artists who can have long lasting careers and who could be headliners. “ - Clive Davis - Note: Apply this to any prospective employee of your organization
“You've got to seize the opportunity if it is presented to you. “ - Clive Davis

Apply these to your life and business in your quest for success and financial security. Some of these great bits of wisdom can be readily applied to other areas as well.

Posted by debtblog at 01:48 PM | Permalink | Comments (0) | TrackBacks (0)

Net worth, as many of you probably know, is the difference between your debts and your assets. As you can see there are two ways to grow your net worth. You can reduce your debt, or increase your assets. You can also do both to increase your net worth even faster. Keeping track of your net worth on a regular basis will give you an excellent picture of your financial health in that one moment. You should track your net worth on an annual basis. You can even calculate it every 6 months for a more complete picture of where you are financially. You should definitely do this so you can keep your net worth going up and make any adjustments necessary to ensure it continues to do so.

How can you calculate your net worth? It’s fairly simple, actually. You must first total the value of all your assets. Don’t worry about any debt connected with them; you’ll get to that in a minute. Make sure you include real estate, bank accounts, investments, and material possessions such as vehicles, furniture, and jewelry. Don’t forget 401K or other retirement vehicles, such as pension plans (if anyone still has one of those). Next you’ll want to (well you may not want to, but you must for the purposes of this calculation) add up all your debts. Include everything; mortgages, credit cards, car loans, store accounts, business debts (if you’re a sole proprietor), etc.

It’s nice to use a spreadsheet to do this. That way you can save it as a template and just add any new entries, and change the numbers for your next net worth calculation.  Personal finance software such as Quicken can make this process much easier. (Debt Free readers - You Save up to 36% off Quicken here) If you use the software consistently, you’ll already have all the information to make the calculation without all the troublesome math and stuff.

Once you’ve calculated your net worth, or lack thereof, you’ll know how far you must travel to meet your retirement goals. As you get closer to achieving your retirement goal, you’ll notice a feeling of warmth and jubilation wash over you like a warm bath. You’ll no doubt get giddy with anticipation. The truth is you can always keep working if you love your work, but it’s always nice to know you’ll never have to again.

Posted by debtblog at 12:55 PM | Permalink | Comments (0) | TrackBacks (0)

For example, if you sere to invest the money you saved in a tax deferred retirement savings account earning 8% interest, here's a sample of how it could contribute to a healthy retirement.

An HDTV –
I'm as big an HDTV fan as the next guy, bigger, my wife would argue. I love the sense of depth, the vibrant colors and the fine details that really convey subtle emotions you just don't get with regular TV. However, if you were to forgo grabbing that 42” plasma HDTV when it's on sale for $1,000 this 4^th of July, here's how it could add up:

In 20 years - $4,660

In 40 years - $21,500 – and the TV won't be any good by then anyway

Entertainment -
Spending $100 bucks a week on dining out and a movie may seem like a pretty small entertainment budget, and granted, it's not all that big. But if you skipped the dinner you bought with that $100 and invested it instead into your retirement savings account, Viola! You'd have amassed over $351,000 at the end of 40 years.

Lunch -
If you brought lunch from home and saved $40 a week, you'd build up an additional $70 G's in the old IRA!

Premium movie packages –
How much do you really watch HBO anyway? Showtime? Unless there's a show you just can't miss, you probably should, because the $10 a month may not seem like much money. However, the 10 spot you spend for the privilege of curling up in front of the TV those 3 nights when you actually have the time, are costing you even more free money out of your retirement. Cut those back until after you retire when you have the time to watch them, and you'll end up with a robust $35,000 more to keep you plump and happy in your golden years.

Caribbean Cruise –
Now I know you probably danced to Billy Ocean's Caribbean Queen in college, but you're not going to find her on a ship somewhere, trust me. What you will do is suck over $50,000 away from your retirement savings for the average price of just one cruise for two. Ouch!

These are just examples, but they show how seemingly small expenses can add up to big piles of cash in the future. After all, there really is free money out there if you know where to look.

Prayers and condollences out to the family and friends of the Virginia Tech killer's victims. 

Posted by debtblog at 12:42 AM | Permalink | Comments (0) | TrackBacks (0)

Here are some budget figures compiled from various lending institutions, government agencies and financial experts. 

Housing – Prevailing financial wisdom is that your home should be 2.5 – 3 times your annual gross income. The problem here is that in many areas of the country that won’t buy you a nice, 2-car garage, never mind a house to go with it. In more expensive metro areas such as Boston, New York, Seattle, San Francisco, Los Angeles, San Diego, and Washington DC / Northern Virginia, an average 3 bedroom, 2 bath home will cost you $350,000 and more. In cases such as these, you may have to reallocate your budget a little bit, otherwise you’ll need to earn well in excess of $100,000 annually to be able to purchase even a basic home.

Transportation – About 15% of your annual budget allocation should be targeted at getting you where you want to go, according to experts. You can use this taking the train, if you live in New York, or work in NY, but live in Connecticut, for example. With this allocation, you can purchase a nice, sensible Accord Hybrid from American Honda if you only make $34,500 after taxes. This assumes you left off the optional nav system, got 7% new car financing, traded in a vehicle with a $7,000 trade in value, and put $2,500 down in cash. You could do better or worse. Seems like a lot of car for someone who makes only about $45,000 a year. Maybe 10% would be better. Reallocate the extra 5% for housing so you can afford to buy a home, or put it your savings / investment accounts.

Consumer Debt Such as Credit Cards and Revolving Accounts – 10% of your monthly budget should be spent here. Another advantage of getting debt free is that this is another 10% that could contribute to your housing or retirement savings. You could also pay for such things as vacations in cash, rather than with credit. Here’s an idea; forgo traveling away for a vacation for just one measly year, then save the money to pay cash for your vacation next year. This will allow you to always save cash for your vacation, rather than plopping it on the Visa again.

Living expenses such as food, clothing and entertainment – These should eat up no more than 20% of your budget. Here’s another reason to shop at the warehouse food store. You’ll eat so much better if that 20% can encompass such niceties as fish and organic chicken, instead of just mac & cheese and oatmeal. That could even pay health dividends down the road, in addition to the pleasure it’ll bring into your daily life. Buy your clothes at Value Village instead of Macy’s or Nordstrom. Hell, half the clothes at VV are from those stores anyway. Value oriented (used) stores are great, especially when you’re shopping for your kids. They outgrow stuff so fast anyway, it just doesn’t make sense to shop at a full priced store for all new clothes. Who cares what your snotty friends think? They probably have huge credit card bills every month anyway.

Posted by debtblog at 08:20 PM | Permalink | Comments (0) | TrackBacks (0)

1 – Positive Mental Attitude - I posted before about how a budget is like a diet. That’s a key to viewing the budget a positive change, rather than a set of restrictive financial rules you must abide by. It’s all part of the mindset you must adopt in order to achieve success in this, and most, endeavors.

2 – Realistic expense and income assessment – You need to create a budget based only on the income you are 100% positive (see, positive thinking) you are going to realize, while using expenses you are only fairly sure you’ll incur. If you are pretty sure you’re going to get that big bonus, leave it out of your budgeting equation. If you actually do receive it, that’ll be a true bonus, won’t it? If you’re thinking there’s a better than even chance the old water heater will finally give up the ghost and need replacement, incorporate that expense in your budget.

3 –Goal Setting – Where do you want to be in the future, both financially and materially? Do you want the kid’s to attend Yale? How about that vacation property you’ve always wanted? Maybe you feel like retiring at 55, instead of 65. Those goals are all things you must incorporate into your budget. You’ll need to make budgetary considerations now in order to attain those goals you strive for in the future.

Not only is a budget one of the key components in a business plan, a budget is one of the most important parts of your personal business plan too. Personal business plan? Your personal business plan should lay out what you aim to achieve, and how you aim to achieve it, just as in a traditional business plan. As with the traditional plan, you’ll have a budget that has sources of funds and expenditures.

So, start writing, and work out a budget. It’s important you actually work out specifics on paper, rather than keep it all bottled up inside.

Posted by debtblog at 01:20 PM | Permalink | Comments (0) | TrackBacks (0)

What the hell is this new financial vehicle that offers so many important benefits? Well, it's not new at all, only little used. In addition, it's not for everybody, although it's probably a good financial solution for many people that are currently unaware of it. The more you finance consumer goods, and the more consumer debt you carry, the better a proposition it is for you. What the heck is it? It's the substantially over funded whole life insurance policy.

This is not an investment, it's also not a substitute for a retirement plan, although it's been sold as such by some. For that you should max out the matching of your company's 401K and probably have a Roth IRA. That too is not the best retirement funding solution for everyone. I digress, so back to the topic at hand. Correctly set up, however, such insurance plans offer some important advantages that are unobtainable to the common person virtually anywhere else. The key is the phrase “correctly set up”. That's very important. First, some of the benefits.

1 – Dividend Payments – While not guaranteed, historically these plans virtually always pay out dividends that are added to the cash value of the policy. They tend to pay out even in years when the stock market as a whole does poorly. Even better, these dividends are paid on the benefit of the policy, not the cash value, so no matter the funding state of the policy, you'll get the maximum dividend at all times. Your policy is contractually bound to increase a certain amount each year. Dividend paying whole life companies pay dividends if their investments outperform the contractual growth rate. As stated above this is not a certainty, but is very close to one. Once the dividends are paid, they are permanently added to your asset base and cannot be taken away.

2 – Tax deferred growth and other tax advantages – This is powerful stuff. Until you withdraw more money than you've paid into the plan, you pay no taxes! Once dividends and interest on the dividends accumulate, you'll be able to do this. The dividends left in the policy to purchase more insurance are not liable for taxes. If you take out the money as a loan, and you've set up your policy correctly, you'll pay no taxes on the money, either. You do however, have to repay the money. Remember you're paying the money back to yourself, not some bank or credit card company. Unlike liquidating part of a brokerage account to make a major purchase, you'll not get hit with capital gains taxes when taking a loan against your policy to use for the same reason. You owe no taxes on the money you withdraw from your policy until you exceed the amount you've paid in. Once you reach that point, you can begin taking loans against the policy, also without taxation.

3 – Your money stays your money. You get back the money that's paid in to the policy. Unlike paying principal and interest to a financial institution when you finance a purchase, this money stays with you. You now have a financial asset base you can leverage for additional wealth generation, tax free. If you have a brokerage account and you're buying on margin, your account can be called and you must pay everything back immediately. That can't happen here.

4 – Guaranteed asset growth – Your asset base is contractually guaranteed to grow. Remember, this is not an investment, and the rate of growth should not be compared to traditional investment. You're not using this as a substitute for your retirement account (you should still regularly contribute to your IRAs, 401Ks and other retirement instruments), it's for accumulating a financial asset to be used in making purchases you would have otherwise financed with credit cards and consumer loans. In addition one of the most powerful uses of the money is leveraging it for investment growth.

5 - Receive Dividends on the Full Amount – This is so important, I mentioned it twice. When dividends are paid, you receive dividends on the full amount of the policy, even if you've borrowed a substantial amount to use for investments or other purposes.

6 – Consistent Growth at Very Low Risk- Unlike the market, you'll receive consistent growth of your asset. That's important if the primary reason you're creating it is to use as a private bank or credit reserve. With your money in the market, you may need it during a down period. That's the wrong time to withdraw your funds, no matter how badly you may need them. With the market, the high return funds tend to have higher associated risks.

7 – No Age Limitations – Maybe you'd like to retire before you reach 59-1/2. If so, you'll not be able to touch your IRA, unless you want to take a major tax penalty. You can also begin withdrawing it after 70, if you'd like to, and are in a financial position to wait.

8 – High Liquidity – The assets in the policy are easy to get to. You can tap them virtually at will when you need them.

9 – Reliability and Solidity – A correctly chosen company will provide you with incredibly reliability and solidity. They will have provided unwavering growth for many decades, in some cases more than a century. This is obviously of the utmost importance in a banking and personal financial reserve system.

It all sounds pretty damn good so far, but read on. There are some powerful arguments for using these policies as one of the financial instruments in your arsenal. You also avoid all the problems associated with borrowing against your 401K, something you should think long and hard about before you try. To effectively use an insurance policy as a financial vehicle, you must make sure the policy is correctly set up in order to maximize the advantages. Now, I'm sure there are many out there who know more than I when it comes to setting up such policies, but here are some of the key points.

1 – Use Only ”Non-Direct Recognition” Insurance Companies – Failure to do so can result in your being penalized by the insurance company for taking loans against the cash value on your policy. That goes against the reason for perusing this strategy in the first place.

2 - The death benefit is secondary. That's important. You're still here, hopefully. You're want to be using this money for purposes here and now, so you need to structure this policy so it's what's known as substantially over funded. You pay in to maximize the cash value while minimizing the death benefit.

3 – Maximize the Cash Value With a Paid Up Additions Rider This also known as a PUP or OPP, depending upon the insurance firm. What such a rider does is to give you the option to pay into the policy in order to increase the death benefit and cash value. The money paid in not only increases the cash value, but also the dividends paid to you. As with the other monies, the cash value accumulates tax deferred.

4 – Don't Surrender the Policy, or You Will Owe Taxes – You want to borrow against the policy, not cash it out. If you do so, you will owe the government their fair share (no jokes please).

5 – The Policy Must Pay Dividends – That's vital to using this type of vehicle successfully. If you're not using a dividend paying whole life insurance company, this money system won't really work. Dividend paying policies are also known as “participating”. This indicates you are participating in the overall earnings of the company and are thus entitled to dividends based in some way upon the profit. The dividend payments that come in, weather you've borrowed against the policy or not, are one of the keys to success when using this type of financial vehicle.

6 – Use an Insurance Agent With Experience in This Specific Type of Policy – Remember, this is a bit unconventional and many agents may not be all that familiar with correctly setting it up so you maximize the financial benefits.

There are, as with everything in life, some disadvantages to the system. If you do decide to go this route, the key is to minimize them and maximize the advantages. For the purposes of using the system as your own, private banking system, the disadvantages are outweighed by the advantages for most people.

1 – It's Not Completely Free – Ah, but what is in life? In most cases, you'll pay a load or fee on some of the contributions, such as the PUA. These fees vary with the policy and insurance company, so shop around.

2 – You've Got to Pay Extra - To really make the system work you've got to accelerate the cash buildup, and thus the dividend payments you'll receive. The difference between the size of your asset will be huge by adding the PUA. Not a huge disadvantage, really, you just need to make sure you include the extra cash payments in your evaluation.

3 – In the Beginning You'll Pay in But Be Able to Take Nothing Out. - It takes a few years to build enough cash value in the system to get everything off the ground. If you need the money now, or in a few years, you may find this is not the proper system for you. The advantages after the first five or six years will more than make up the difference for most people, however. Typically the program will be funded to such an extent after the initial phase that you'll be ready to completely use the system.

4 – No Guarantees of Dividends – One of the key components that make this system so effective are the dividends paid to participants. These are not a sure thing, although historically they are very, very close. Just know they are not guaranteed.

5 – Lower Return Than You'll Get In Many Investment Plans – True, in many cases far lower. However, you also get a contractually guaranteed return, so you have lower risk. Remember, you're not using this a long term retirement vehicle.

6 – Not a Universally Approved Solution – If you find one of those, be sure and let us all know about it. As with everything, some people have had great luck and swear by it, while others pan it. Much of the “luck” is due to the care which was taken setting up the plan to be sure it matched your needs. Not all insurance agents are up on the finer points of correctly setting this up. As with everything, some are more qualified for setting up this specific type of policy than others.

I'm no expert on such things, so you can get more information on this at the following places:

Here is an excellent website set up by a computer engineer who has one of these policies.

This is someone who has a great report on the subject, although they are definitely selling something, somewhere.

Here is a lively discussion in the comments to a related post over at Blueprint for Financial Prosperity.

Here is a white paper on the subjectfor you to peruse.

Posted by debtblog at 01:53 PM | Permalink | Comments (0) | TrackBacks (0)

The reality is that they wanted to retire, but couldn’t quite put away the required nest egg. So, after leaving that position they’d held for the last 35 years (that was then, that scenario would be a little different these days), they found that the social security and meager pension just couldn’t keep them in the style to which they’d become accustomed, so back to work it was.

So, how to avoid a similar fate? Well, funny you asked. First of all, don’t plan on the Social Security system providing any. Security, that is. If we’re lucky, it will only pay out half of what it pays now, after they reduce benefits to stay solvent. It could conceivably be much worse. They’ll probably have to enact a hefty tax hike too, so it’ll be even harder to save the larger nest egg you’ll need. You could be one of those workers that get caught between the current system and the new, semi-privatized system we may see that actually pays a decent rate of return. You’ll be in sort of a government retirement plan purgatory.

The thing is, people in their 20’s and 30’s are going to need a larger retirement nest egg, on average, than those today. Why? Because health care costs are going up like coke into Miss Hilton’s nose, and although health care is expensive, it’s also very effective, and getting more so. That effectiveness is making everyone live longer, and so their retirement funds need to stay around longer to support them. In addition, you chances of meeting a person who actually has one of the old, defined-benefit style pension plans is about are right up there with  smacking a hole in one on that course you won’t be able to afford to play. Lacking a “traditional” pension, most of us will need to make up the difference on our own.

What are the 5 most important things you must do in preparation for your “Years of Paradise”

1 - Start Saving Early – It’s never too early, but it sure as hell can be too late, can’t it? Here’s a little illustration that’s been dredged up again and again, but it’s true. Two people graduate from college at 23 years old. Suzy gets out of NYU, and Mikey snags his degree from UCLA. Suzy’s dad was an accountant, and taught her well. She instantly starts stashing away a nice sized chunk, $200/month, for her retirement. Assuming she sees a 7% investment return, she’ll have $35,481 after the first 10 years. She tires of saving, marries a great investment banker, and stays home to raise the kids (Yeah, I know it’s not politically correct, but that’s what she wanted to do). It matters little, however. That $22,224 will balloon into $309,226 when she’s 65 years old.

Mikey, on the other hand, leaves UCLA with his degree, gets a great job, but wants to travel and party. He neglects saving for retirement, figuring it’s a long way off, so what the hell. After the same 10 years, he decides to get on the stick and puts in the same $200 a month (a bit light for a 32 year old with a great job, but stick with me). We’ll leave aside the whole IRA contribution limits and tax consequences for a second. After 32 years, he turns 65 and takes a peek into his retirement account to discover he’s amassed only $283,040.

2 – Be Consistent – It’s got to be automatic, those retirement contributions. If they’re not, it’s too easy for those little things in life, like sickness and this or that emergency to arise and derail your scheduled donations (to yourself).

3 - Max Out Your Matching – If your employer is kind enough to offer matching, for Christ’s sake, max it out. That’s free money they’re throwing your way! You don’t see that too often. If you do an analysis, you might find that the matching is the only think that makes the 401K a good choice of retirement vehicle (I’d prefer a new 997).

4 – Set Your Retirement Goals – You have to know where you’re going in order to determine the best road to take. It seems common sense, but you’ll have to determine what you’ll need, for how long, and what you’ll feel comfortable with as a reserve. If watching WCW in your Barcalounger is your idea of paradise, you’ll obviously need less than someone who wants to spend a January in Aspen every winter skiing, and March in the Virgin Islands sailing and scuba diving.

5 – Stay Out of Debt – A massive consumer debt load you must service is a sure way to kill a joyous retirement. Try to be debt free upon retirement. In a perfect world, you’ll be completely debt free long before retirement takes hold, but if not, try to reach that plateau before you take the road to retirement paradise.

These five rules for a financially successful retirement are not the only things you need to do in order to prepare for your years in retirement paradise, but they are  keys to retirement success.

Posted by debtblog at 07:07 AM | Permalink | Comments (0) | TrackBacks (0)

There are several things that the average person should seriously consider if they want to escape the clutches of deep debt caused by external forces.

1 – Check your car insurance – Make sure that your coverages are up to date and adequate to protect you in the event of an accident. With the price of cars and auto repair today, a seemingly minor collision can cost you thens of thousands of dollars. If you have the misfortune to collide with a car such as an Acura NSX or Audi A8, both of which have aluminum bodies requiring special repair techniques, a 15mph collision could wipe out the equity in your home.

The car repair induced bills you could be responsible for pale in comparison to the possible medical expenses you could be hit with. A collision victim requiring a week in the hospital, a surgery, a few specialists and some months of follow up therapy could easily wipe out $100,000 in coverage and then some. You know where the rest of those medical bills would come from. That's right, your kid's college fund, your 401K, or the equity in your home, if you're fortunate enough to have any.

The other insurance related mistake that can cost you plenty, although at a slower pace than inadequate coverage, is keeping your deductibles too low. For heaven's sake if you're the type to have $100 deductibles on your insurance policies, call your agent at once. You're throwing money away as we speak. Raise them to $500 or better. You don't want to claim anything that small anyway, it'll just cost you more when they raise your rates.

2 – Earthquake proof your house – You may or may not have earthquake insurance. In some locations it's much more expensive than others, as you'd expect. You should know, however, that most home owner's insurance policies won't cover earthquake damage, ditto for many when it comes to flood damage. You can, however, minimize the potential for your home to be substantially damaged in all but the largest earthquakes by following some simple steps. These include solidly bolting your house to it's foundation and strapping water heaters and other things so they are more or less immobile. Many new building codes require substantial metal strapping, shear walls, and metal brackets as earthquake mitigation measures, but older homes don't have such precautions in place.

Many home supply stores have classes on how to initiate these preventative measures. A few hundred or thousand dollars now could prevent tens or hundreds of thousands of dollars later. Many of the measures are fairly simple and can be completed by the average homeowner who's not deathly afraid of tools.

3 – Don't get behind on your taxes – Rule number one: Don't ever fuck with the IRS. Ever. The same holds true for your state's department of revenue. Their penalties and fees will eat you alive. It may seem you don't have the money to pay them. If that's the case you need to find a better accountant and/or re-prioritize your spending. Food and clothing can wait. If you owe the IRS substantial money, be proactive. Go see them, don't wait for them to come to you, because that's not a good day. Check into their Offer-In-Compromise program. This can allow you, in certain circumstances, to settle your tax debt for less than you currently owe. You'll need two IRS forms to initiate the process, forms 656 and 433-A (the IRS loves forms, don't they).

These are just some of the ways you can keep unexpected problems from overtaking you and plunging you deep into debt. The key is to keep informed. Like the law, ignorance is no excuse, although it sure is easier.

Posted by debtblog at 03:08 PM | Permalink | Comments (0) | TrackBacks (0)

If becoming debt free or substantially debt free is your goal, that's fine as far as the big picture, but what exactly are you going to do this year to achieve it? Maybe your goal is to retire rich. First of all, you'd better define “rich”. After you've gotten that out of the way, you'll know where your target is. After all, it's hard to meet a goal you haven't really set yet.

It's been proven you can retire with over a million dollars in your investment account(s) by only saving a single dollar every day. The downside is that it'll take 65 years and, if you'd like to retire at that age, you'd better start by picking the OB/GYNs pocket as you're born, and never letting up. To make it even more tricky, you have to maintain an 8.7% rate of return and compound your savings daily. So, if your goal is to retire rich, and you've defined rich as having $1 million in liquid assets, you know it can be done.

The point is that you should have at least two things in order to reach your resolution.

1 - A well defined goal. “Get debt free” is fairly specific, while “spend less money” is not. In order to achieve any goal, financial or otherwise, you must define it first.

2 – You need a specific plan to attain the goal. It should include all the steps and the math necessary to make sure you stay on target to reach the goal you've laid out for yourself. Break the problem of reaching your goal into smaller parts and attack each one individually. You should know exactly how much money you need to contribute, when, and to which account, in order to reach your goal. You should also be well versed in the assumptions you made in order to make the plan valid. If you assumed an 8% return in your plan, but in reality, the account is only returning 6.5%, you need to make some revisions. Keep on top of it.

Happy New Year! Make that financial resolution, whatever it may be. That'll be one more tool you can use to get yourself in the financial Disneyland you wish for. After you've made the resolution, just do it, and don't stop.

Posted by debtblog at 11:36 PM | Permalink | Comments (0) | TrackBacks (0)

1 – Financial Goal Evaluation – Evaluate your goals vis-a-vis your finances. Are they still realistic? Maybe they're actually a tad conservative, or you could have set your sights just a bit too high. Personally, I think that setting your goals on the ambitious side is a good thing. If you miss your targets by just a little, you're still doing better than if you set your goals much too low and exceeded them. If becoming completely debt free is what you're after, how are you doing? List all your credit cards and other credit accounts(you should have them listed already if you're using the 'roll up' debt reduction strategy) and compare them to last year. Is there an improvement? If not, why, and more to the point, what can you do about it? Are your financial goals realistic, or is a revision in order?

2 – Debt Evaluation – Look at all your debts closely. Pay particular attention to your credit card accounts and store charge cards. You should do this every month, but if not it's time to do it as part of your year end financial review. Look at the interest rates and balances. If you are killing off one credit card at a time, it's easy to kind of forget about one of the others, especially if you've stopped using it. Make sure the interest rates haven't been raised on you. This is important. A small percentage adjustment in the interest rate can end up costing your big time over the long term. Make sure you haven't been charged any unwarranted fees either.

3 – Debt Restructuring - This is not to be confused with taking out a debt consolidation loan, although that is a valid option for some. I'm talking about attempting to get the most advantageous debt terms for yourself as possible. Go through your credit cards one by one. Call your creditors to see if you can get an interest rate reduction. Begging, pleading, and other forms of persuasion go a long way here. If your husband or wife is better at these kind of tactics, let them make the phone calls. Pull out all those dead trees you've been sent recently. You know, the ones with the balance transfer offers on them. Look through the offers carefully. It's possible some of them would be worth doing. You can get out of some of your high interest cards and pay little or no interest. Be careful though, as I've addressed before in other posts, not all of these balance transfer offers are the great deals they may seem on the surface.

4 – Tax Review – Now is about your last chance to make any changes that may improve your tax picture for the year. Any donations to make? Leave that bag on the front porch. It's time to write that long promised check to your alumni association. Watch out though, they'll send you even more letters now! Your taxes are just another debt you need to address. Look at all you investment accounts and real estate holdings, then consult your tax professional now, before the last weeks slip away amid the holiday rush.

Hopefully you've done well this year on your path to debt freedom and financial security. Now's the time to make sure. Although you've probably got a million things to do, what with parties, shopping and all the other distractions of daily life, it's important you get on with your year end financial review, before it's too late.

Posted by debtblog at 02:22 PM | Permalink | Comments (1) | TrackBacks (0)

There is a tendency in America to spend up to your income level, and a few percent beyond it sometimes. That will hold true no matter how much money you make. You just keep ratcheting up your spending to match, or slightly exceed your income. Many people have thought “If I could just make 'X' dollars, I'd be set.”. All too often, when they get there, they find themselves with the same thought, only a higher 'X' amount! If you don't stabilize the cash flowing out, you'll never attain that hallowed place of financial stability which you seek.

Here are some ways you can keep more of your hard earned money.

1. Stop climbing the mountain for a while. You don't have to have the best home you can afford, a sweet car like your brother-in-law, or a membership at the tennis club(unless it's a business expense). Stay where you are for a while, or even better, slide backwards a bit.

2. Raise your credit score. That will make many of your interest rates and expenses drop. It may take some diligent work and more than a few phone calls to pull it off, however. Many of the expenses you pay today, from credit card interest rates, to auto insurance, use your credit score as one of the primary factors in the equation when they set your fee and rate structure. Once you can raise your score, and maintain that for between 6 months to a year, you can often get a reduction on your rates, fees, or interest. You must make that happen, however, by contacting the companies, and browbeating them into it. They will not do it out of the goodness of their hearts.

3. Network with everybody. It's often been said “It's not what you know, it's who you know.”. That saying is oh, so true. But the key is not only in building up a large network, it's actually using it. You'll reap countless benefits. You'll find out about jobs, investments, and other opportunities. For the purposes of this post, keeping more of your money, you'll often find out about ways to get tremendous bargains on things you need. For example, I got an almost brand new, Maytag dryer for only $50! This is one of the really nice dryers, with the wrap over the top door, that sells for almost $600 new. The key is to actively seek out opportunities of this nature and avail yourself of them at every opportunity. Don't for get to return the favor, either. If you're getting rid of something, be sure and let everyone know. It'll help them out, and allow you to easily dispose of something at the same time.

4. Avoid extraneous fees at all times. These are fees that you get nothing for, such as late fees and bounced check fees. To accomplish this, start paying your bills online. It's much easier, and saves time to boot. You'll be less likely to get penalized this way. In addition watch the use of your debit card if you're running a low balance in your checking account. In many cases, the account will have an amount frozen for much greater than the purchase amount. This could cause you to bounce a check (or three), earning you several late fees. Formalize a system for paying your bills so your less likely to pay them late. Always remember, it's when the companies actually post your payment that counts, not when they receive it, so give yourself a few extra days. Don't cut it so close all the time.
   

This should help a small bit in your quest to get more money in your account, and less into your creditors.

Posted by debtblog at 01:56 PM | Permalink | Comments (4) | TrackBacks (1)

Budgets are like diets. It’s so easy to fall off the wagon. Just one bite of that chocolate éclair at the wedding, a piece of pizza while watching the first football game of the season (we lost 40-14. Ouch!), or dropping a quick $75 on that concert you just had to go see. Too often, and for too many, that first step down the slippery slope is all it takes to keep you off the wagon for good. (Or until you’ve gained back the 40lbs.)

To be truly effective, a diet needs to be part of a broader lifestyle change. It can’t be something you have to stick to. You resent it, and are constantly waiting for the opportunity to turn your back on it. If you change your lifestyle to incorporate exercise, a generally more physical lifestyle, and a good balanced diet of whole, nutritious foods, you have a much greater chance of success. A diet is something that has an end, while a lifestyle does not.

You see the parallels. Much of what can be said about a diet holds true for a budget. You can’t treat it like you’re depriving yourself of things for a while. It’s a piece of cake, really. Just revamp your lifestyle to incorporate your new, revised budget. Change your activities. Enjoy recreational pursuits that are less expensive. Sell the ski boat (blasphemy!) and go mountain biking or kayaking instead. I know you can’t sit out on the lake with the babes in bikinis swilling beer in a kayak, but that’s the way it goes sometimes. You can still go out for dinner on the weekends, but instead of Shula’s or Ruth’s Chris, go for Appleby’s TGI Friday’s or Chili’s instead.

The point is to get to where you feel normalcy in the new budget. That way you don’t miss “the way we were”. You’ll be comfortable, and that’s really the goal, isn’t it. Once you achieve debt free status, just stick with your new lifestyle. It’ll be easy, because you’ll just be living your life. You can then contribute even more to your investments or retirement accounts. If you’re already retired, you’ll have a little wider margin of safety with your new lifestyle.

Posted by debtblog at 05:38 AM | Permalink | Comments (0) | TrackBacks (0)

In the last fiscal quarter, Americans spent $9,229.6 billion on personal consumption items. That's pretty large, but next time you think you've really made it, toss this thought around in your noggin. With his net worth hovering around $50B, Bill Gates could cover all the expenses of every American for a year and still be in sole possession of #12 on of the Forbes 400 list of richest persons. According to the U.S. department of Commerce, in Q2 of 2006 the average(?) American spent the majority of their personal income on, and this was a big surprise, medical care. That's right, you've got to pay the doc. If you thought it was your imagination that medical care was ridiculously expensive, you're wrong. Your imagination's not that good. American's spent more on medical care last quarter than any other single spending category. Staying alive, and, one would assume, reasonably healthy, consumed over 17.1% of our consumption dollars!

Housing, a category you'd think was the largest, came in a distant second. Keeping a roof over your head demanded, on average, 14.8% of your personal spending. Well, at least for homeowners in most locales, the outlay for housing doubles as a healthy investment. Historically, home appreciation has averaged about 2% over the rate of inflation, and home ownership offers some nice tax benefits to boot. If you live in So. Cal, the Bay Area, Boston, Seattle, or Las Vegas, you've beat the average handily over the last few years.

Fish gotta swim, birds gotta eat, and so, food was the third largest personal consumption category. Tasty victuals persuaded a hair over 13.8% of your dollars to jump from your wallet. Walkin's no fun either, unless it's on a beach at sunset, thus the American love affair with Benz's creation cost the average Joe/sephene about 4.8% of their paycheck each month. Keep in mind that, according to the USDOT, over 8% of U.S. households don't own a motor vehicle. This means that those households that do have one or more cars spend more than 4.8%.

That would have occupied forth place on the list, but it was actually eclipsed by the crazy desire of people to keep their home warm and cozy, and not to trip over the kid's toys in the dark. Keeping your home comfy isn't worth much if it burns down, or is swept away because you built it in a flood plain either, so the bank demands you keep it insured. Home operation expenses caused you to fork out, on average, 5.3% of your personal expenditures.

These are the U.S. averages for personal spending. What is different for those who are a bit better than average on the financial security ladder? What do they do differently than Joe Average? First of all, many of those who find themselves with a sudden windfall tend to experience a pretty bumpy ride. Despite what you'd think, may who win money are soon broke, or close to it. The causes seem to be lack of education and fiscal restraint. The primary culprits are, surprise, surprise, overspending and poor investments. By the numbers, those who play the lottery tend to be poorly educated, thus, many of those who win are also poorly educated. They are, therefore, poorly equipped to handle what most would think to be a bit of good fortune. The media is replete with lotto winners losing everything to, and these seem to be the most common sources of financial demise; gambling, drugs, poor investments, giving money to family, cars, vacations, poor investments. Most of those who frequent PF blogs would probably fare much, much better.

How about those who made their fortune by actually working hard, saving, and investing? Where do they spend? First of all, according to a 2003 study of America's wealthiest consumers performed by the American Affluence Research Center (yes, it really exists), the average American with a net worth of over $1,000,000 doesn't earn as much as you'd think. Many (92%) earned less than $100,000/ year. This figure is slightly misleading, because one of the leading ways for them to have attained their wealth was through entrepreneurship, and many had already sold their businesses for a handsome profit. They now lived on fixed incomes, thus the low annual income figure. 12% of those surveyed in this demographic however, continued to run their own businesses. Others, and this figure has probably increased dramatically in the last few years, had a substantial portion of their net worth in their residences, and that was how they achieved their net worth. Most did it the old fashioned way, by living a fairly frugal life for many years, saving and investing wisely and consistently, and only occasionally splurging. The average of this group was 55.

So, where do these millionaires and almost millionaires spend their money, and what do they do? Much the same way as the rest of us, but on nicer things. It's very important to note, however that they are usually rewarding themselves after a fairly frugal lifestyle. This group is 328% more likely than the average consumer to own a Cadillac (possibly reflecting the older age of this demographic, sorry GM), and 162% more likely to drive a Benz. They tend to be patrons of the arts and give much more to charity than the average. They are 127% more likely to be involved in civic issues than the typical consumer. They are voracious readers, with two of their favorite magazines being Kiplinger Personal Finance and U.S. News & World Report.

Of those that are substantially wealthy, with net worths exceeding $2 million, 11% are self employed, only 5% are retired, and nearly all have incomes in excess of $100,000, with most far above that figure. 81% have a college degree. While those affluent consumers in the previous group can be found throughout the U.S., those in this wealthy group are concentrated in the major metro areas such as NY, NY, Boston, San Francisco and Los Angeles. This group spends big bucks on home improvements. They are 333% more likely than average to spend $5,000 or more annually on home improvements to their palatial residences. If you're watching the U.S. Open and remember Wimbledon, you doubtlessly noticed that half the ads seemed to be for luxury cars or investment companies. There's good reason for that. Those in this demo really do spend quite a bit of time and money on golf and tennis, just like the stereotype says. They love good beer too. Their fav domestic is Sam Adams. Like the others in wealthy demographic groups, these folks spend substantial monies on charitable causes.

Posted by debtblog at 02:09 PM | Permalink | Comments (2) | TrackBacks (1)

There are only three ways to reduce your debt, increase the balance in your savings and investment accounts and contribute to your financial security. Everything toward these ends is a combination of one or more of these financial strategies. They are:

• Increase your earnings – If you maintain your expenses at their current level and increase your earnings, you'll obviously have more money to pay down debt and make savings contributions. You can increase your earnings with a number of strategies, but basically you must either earn more at your present job, get a new job with commensurately higher pay, or add income streams. Adding income streams has the additional benefit of diversifying your income. As with diversity in investments, diversity in income reduces the likelihood that your income stream will be interrupted. It also reduces the effect that a single event will have on your income. You can start one or more small businesses, do consulting work, or get a second job. Keep in mind, however, that free time has merits of it's own. If you take a second job, make sure that the additional income it generates is worth the additional time commitment.

• Decrease your expenses – Your disposable income is your after tax income minus your expenses, so if your expenses are reduced, it stands to reason your disposable income will increase. They key to maximizing this strategy is to contribute all your newly found income toward debt reduction or investments. It makes no sense to reduce your expenses in one area, only to increase them in another, even if that new plasma TV or pair of Stuart Weitzmans looks really tempting.

• Increase the leverage of your existing finances – You can do more with your existing finances. Leverage is one of the most powerful principles in wealth generation. You can leverage any resource really, weather it is time, human resources, plant and equipment, or finances. Leverage allows you to control a large amount of an asset by using a small amount. You then benefit from the asset appreciation of the entire asset, even though you only contributed a small percentage.

  The most common use of leverage for most people is in real estate. For example, if you buy a $200,000 home with 10% down, you control the entire asset, even though you only contributed $20,000. If the home appreciates 10%, you experienced a gross appreciation of $20,000, or 100%! That illustrates the power of leverage. In reality, you'd likely have expenses that would be charged against that. But you'd also have tax benefits. Businesses use leverage every day with their employees. They leverage the power of their employees to create wealth. In theory, the employee generates more for the business owner each day than they are paid, thus contributing to the bottom line of the business.

You can, and should use a combination of all three strategies for maximum effectiveness. Maximizing the combined effectiveness of these techniques will ensure your financial future.

Posted by debtblog at 01:07 PM | Permalink | Comments (1) | TrackBacks (1)