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.

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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.

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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.

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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.

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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