My Favorites - from The Carnival of Personal Finance #132

This week The Digerati Life hosts: Money, Finance and Fancy: The Carnival of Personal Finance #132, Whimsical Christmas Edition you'll find the following post from Teaspoon:

HELOC + ESPP (or 0% Credit Cards) = FREE MONEY (15% to 60%+ returns)!

This was a really big holiday carnival and there's so many good posts to read. Here's some of my favorites:

Spend Less Than You Earn - The Wrong Way To Think @ Brip Blap: Instead of thinking about “spending less than you earn” to make it, why not think about “earning more than you spend?” An interesting perspective that may have you opening up your limits on what you can earn and think of the many endless possibilities!

2007 PF Blogger Net Worth Comparison @ Million Dollar Journey: With personal finance bloggers writing about finance so much, do you ever wonder how much they’re really worth? Here’s your chance to find out what kind of net worth some of us have! OK, this is just car-crash interesting to look at published net worths of some of your favorite PF Bloggers :-)!

Our Credit Limits: Over $1,000,000! @ My Dollar Plan: Madison covers her credit with great detail, slicing and dicing and taking note of her household’s credit accounts and limits. I'm going to keep an eye out for Madison's upcoming posts. This is one person that know's how to manage credit! I'm looking forward to many of the future posts, based on her many comments on this post, to describe the methods she uses to manage the multitude of credit accounts.

I Will Teach You How To Become A Millionaire @ Worldwide Success: Here’s a list of ways to become a millionaire, prioritized according to likelihood of occurrence (from least to most likely). The 10-10-30 formula is one everyone should be employing, then look at all the other 'gravy' ideas Worldwide Success shows for building your million. Don't forget that 'mortgage' for your home can take you pretty close to becoming a millionaire too!!!

Ding Dong - Did Someone Order Groceries? @ The MotherLoad: Grocery deliveries have become very popular as people have become more & more busy. This post offers some tips for shopping at grocery delivery websites as well as a helpful listing of these sites. I'm a real proponent of online groceries. I've often use it to stock up on all those heavy items for parties and such (bottled water, soft drinks, etc.) and have them delivered to the door for an incredibly reasonable fee (often only $10).

15 Money Pitfalls To Avoid @ Millionaire Money Habits: Here’s where you can read about 15 common money pitfalls to avoid becoming another case study. This is a really great collection of common money pitfalls. I encourage everyone to check it out and see if there's any new positive money habits you can build in 2009.

How to Become a Famous Blogger (or) I’m a Closet Millionaire No More @ Millionaire Mommy Next Door: One of us has been discovered by Montel Williams! Woohoo! If you want to see what Millionaire Mommy and her family look like, read her post. And make sure you tune in to Montel Williams this Friday, December 28 to catch this PF blogger on television!

Comparison: Major Presidential Candidates on Monetary Policy and the USD @ Currency Trading: In this presidential race, monetary policy is a hot issue. Many Americans are fed up with government excess, a failing health care system, and faltering personal wealth. This post covers how some of the major presidential candidates stack up on these issues and more.

www.mtgprofessor.com - My Favorite Site for Everything on Mortgages

My 'go to source' for all the best info has been The Mortgage Professor and I'd just like to pass this on to folks that may also have lots of questions on mortgages. I've been spending some time there reading quite a few of the incredibly informative articles and FAQs that Jack has on his site. Let me take you through some highlight articles and faq's that I really enjoyed reading and felt helped to get me informed for mortgage discussions. Another wonderful thing about Jack's site is that you'll find the articles and topics have frequent updates as Jack uncovers new answers to similar questions, examples and info on that topic.

Buying a new house before selling the old one - This was really educational as I'm currently contemplating this scenario and couldn't find any real good info on the web about it. If you're like me, you might have rolled this question around in your head:

"I need to use the equity in my existing house to buy a new one, but it looks like I am going to have to close on my new house before I am able to close on my old one…How do I handle this?"

I learned that you have many options and what kinds of questions to discuss with your bank/mortgage broker when discussing loan options. You can draw from your current equity via a HELOC and use as down payment on your new place. You can request a bridge loan. Often loan officers will want to know that you've listed your current home before going down this road.

Another article discusses the different scenario options in Buy or Sell First? a similar question is asked:

“I currently own a home which I would like to sell, and then buy another. What is the best sequence of steps in this process?”

I'm not fortunate enough to need an answer to this question but enjoyed the article Sell Now to Avoid Future Capital Gains Taxes?

"If a House Has Appreciated by $500,000, Does it Make Sense to Sell it and Buy Another For the Sole Purpose of Avoiding the Capital Gains Tax That Is Due on Gains Above $500,000?"

Quick Tips on Major Hazards - As much as we are trusting souls when we discuss money matters with professionals that send us quoted estimates, there are hazards to look out for. This is a great article and jumping off point to many other related article topics: Quick Tips on Major Hazards. You'll definitely want to read up on the lender tactics to avoid that try to tack on costs as closing approaches in Legal Thievery at the Closing Table.

I mean an almost 200% increase in quoted fees is outrageous, like this:

"I paid $2240 in lender fees when my loan closed, compared to the $880 I was quoted at the time my rate was locked. It was a total surprise that hit me at the closing table. With my house purchase at stake, there was nothing I could do. This is outrageous…why doesn’t the government do something about it?"

apparently the whole design of the GFE (good faith estimate) is designed and allows for fluctuations like this.

HELOC + ESPP (or 0% Credit Cards) = FREE MONEY (15% to 60%+ returns)!

For anyone that has available Equity in their home and an unused potential in their employers ESPP program should really pay attention! For those that are playing the shell game with 0% credit card interest rate arbitrage and ask, "Hmmm, where could I get a guaranteed 10% or 15% return?", well read on, how about a 40% or even 60% annual return! I've been giving away some free money and I'm not happy about that. I'm correcting that, toot-sweet! I hope all of you will review your circumstances and consider doing likewise, if it makes sense and you have availability to your ESPP that you aren't currently funding to it's max potential.

I have available equity, like most people, that I just realized I could be putting to work. Recently I've pulled back on my ESPP contributions, for at least the last year now, in favor of maxing out my 401k. Of course that's a good option, but I've been thinking and came up with a novel idea. So, no more wasting the potential of my ESPP. Here's a simple example. My employer offers an ESPP that plan with 15% discount on stocks every quarter. So, that's a 60% annualized return. Take a look and see how that works out:

• Jan-Mar: Contribute 0-15% of your income and purchase your companies stock at 10% discount. At which time you can sell immed for 10% gain or hold and sell at a later date. Let's look at an example of $50K (take home pay) after taxes. This would break down to about 4200/month after taxes. Example: 15% of $4200 = $630. contributed montly x 3 months = $1890. Sell immed to lock in 15% gain of 283.00.
• Apr-Jun: same thing as above. Total contributions of $1890.00. 2nd 15% gain of 283.00.
• Jul-Sep: same thing as above. Total contributions of $1890.00. 3rd 15% gain of $283.00.
• Oct-Dec: same thing as above. Total contributions of $1890.00. 4th 15% gain of $283.00.
• Total contributions for year: $1890 from Heloc x 4 (i.e. recycled 4 times)
• Total of 15% quarterly returns: $1132.00
• Total return on initial $1890 HELOC contribution: 60% annual return!!! Now that rocks!

Now, please correct me if you think I missed a point, as I'm just thinking about all of this and planning to implement shortly. I plan on starting this Jan 08, so I'll see how it actually works out. Here's how the quarterly draw and money management would work:

• Jan 08: Draw $1890.00 from your HELOC Account that you'll be contributing from your payroll for Jan-Mar contribution period. Deposit that amount in your checking account that you normally use for bills, etc. Make min payments to HELOC every month.
• Jan 08: Max out your payroll contributions so that $1890 is drawn from payroll during Jan-Mar 08 contribution period
• Apr 08: Stock is purchased with your contribution. Sell this stock immed, or put stop loss to increase potential returns even more!
• Apr 08: Deposit the $1890.00 from your stock sale proceeds into your checking account that you normally use for bills, etc.
  remaining $283.00 is your 1st 15% return (use in your checking if you want to help bridge between subsequent stock purchase and sell periods or apply payment to HELOC to reduce principal).
• Apr 08: Max out your payroll contributions so that $1890 is drawn from payroll during Apr-Jun 08 contribution period
• Jul 08: Stock is purchased with your contribution. Sell this stock immediately, or put a stop loss on it to increase your potential returns even more.
• Jul 08: Deposit the $1890 from your stock sale proceeds into your checking account that you normally use for bills, etc. The remaining $283.00 is your 2nd 15% return (use it in your checking if you want to help bridge between the subsequent stock purchase and sell periods or apply payment to HELOC)
• Jul 08: Max out your payroll contributions so that $1890 is drawn from payroll during Jul-Sep 08 contribution period
• Oct 08: Stock is purchased with your contribution. Sell this stock immediately or use a stop loss to increase potential returns.
• Oct 08: Deposit the $1890 from your stock sale proceeds into your checking account that you normally use for bills, etc. The remaining $283.00 is your 3rd 15% return (use it in your checking if desired or apply payment to HELOC).
• Oct 08: Max out your payroll contributions so that $1890 is drawn from payroll during Oct-Dec 08 contribution period
• Dec 08: Stock is purchased with your contribution. Sell this stock immediately or use a stop loss to increase potential returns.
• Dec 08: Deposit the proceeds into checking. Wash ... rinse ... repeat for next year if desired
• Dec 08: pay off remainder of HELOC balance on original $1890 plus interest.
• Dec 08: Count your returns of $283 x 4 = $1132 (i.e. 60% profit, less any interest paid on HELOC probably no more than 8% or 9%).

Considerations and things to think about:

• The one drawback with this strategy is that you can't get an endless stream of high percentage returns (i.e. your limited to your 15%, etc. max payroll deduction amount). But, that doesn't mean you can't offer to loan money to any of your coworkers and teach them how to do it (especially if they don't have HELOC money avail). That's still leaves a great return on investment if you split it with your coworkers. Anyone know if there's any problem with going this route? Obviously the drawback is that your coworker might not be that on top of money, like you :-)...
• If you're not currently maxing out your 401k, then you should definitely do your best to try and max out your 401k contributions
• By concentrating your efforts on maxing out your 401k, then you will likely not have funds to max out your ESPP potential, in that case you should look at using your HELOC to fund your ESPP to it's max potential as above
• Many ESPPs have even more advantages for you to make gains beyond their 10% or 15% (or whatever their discount stock purchase % is). Some companies allow you to purchase at an even lower price, based on lowest price of 1st date or contribution period or last date. So, if the stock price at the beginning was 50% lower than the end, you get to purchase at 50% + your discount percentage 10% or 15%, etc. from the current stock price. This makes even more gains!!! The Wonderful World of Employee Stocks, Part 3: Don't Poo-Poo Your ESPP
• As mentioned above, profiting from 0% credit card offers makes a lot more sense now. Traditional methods discuss putting the money in savings accounts and using that gain, well ... how about the percentage gains above!More on How to Make Money with 0% Credit Card Transfers (And Five Reasons Not to Try). The only thing I'd caution against with 0% Credit Card offers, is that they are real tricky to manage, and I'd still advise going with the more sane cheap money avail to you through HELOC, if you have it.

You'll find this post on the following carnivals:

Money, Finance and Fancy: The Carnival of Personal Finance #132, Whimsical Christmas Edition

118th Carnival of Debt Reduction - Winter Solstice Edition

You Are A Great Investment, Don't Be Stingy!

You've heard it before, one of the best investments you can make is to invest in yourself. When it comes to making yourself all you can be, you shouldn't be stingy with your money. This can be simply relaxation, exercise, papering, reward and the most important investment: EDUCATION.

Free Money Finance has a great quote from Money Magazine that puts some real dollar values to education:

The money you spend on a college degree still yields a sizable return on your investment. Over a working lifetime, the typical college graduate earns about 75% more than a high school grad does. On average, that difference totals $1 million more -- easily enough to re-pay those student loans and then some. The payoff from graduate school is even bigger: People with advanced degrees earn two to three times as much over their lifetimes as those without a college degree and increase their average total earnings by as much as $2 million.

As much as we hate paying off those student loans, they really had a huge impact on our earning potential.

Now, traditional college degrees aren't the only type of education that has a substantial impact on our earning power. Whatever job or profession you are currently in, you should look around on the web and see if there is a professional certification for your profession. This is a great way to add dollars to your pocket at your next raise request or job hunt. Just about any professional job, has some kind of association that manages and gives certifications that say you are someone that is aware of the complete body of knowledge for that profession. This certification means substantial dollars from employers!

Take a look at a very interesting article on www.certmag.com called CertMag's 2006 Salary Survey, you find many interesting bits of info. In particular the following list of top certifications by salary:

Another interesting view of their data is average salary by professional specialization:

Certifications are a great way to let your current employers and your future employers know that you are serious about your profession and deserve a serious salary bump!

Certification: The Benefits and Beyond
Beyond gaining technical skills and advancing one’s career, the reasons individuals have for getting certified can vary, in some cases coming down to their sense of stature or the respect they feel they command in their chosen field. A consistent majority of IT pros polled in the 2006 CertMag Salary Survey agreed certification makes them more confident in the work they do, gets them more respect from management and colleagues, and leads to a greater demand for their skills.

There are more benefits to getting your professional certifications:

“There are a lot of aspects that the certifications cover that I didn’t directly deal with in my job, but I think learning those helped me to be able to pull from a lot of different areas and experiences and contribute to that job better,” he said.

“It’s not necessarily a requirement for our job,” Helferich said. “It was new equipment to us, and it struck a fancy with me. I wanted to make sure I knew the equipment and went after the certification to have bragging rights.”

“It comes back to risk and the fact that a candidate who has a CCIE has proven him or herself from a technical perspective already,” he said.

I'll say it again: Don't Be Stingy! Spend the money to join your professional organization, get study materials for the test, the fees necessary for the test. All of these can sometimes be substantial, but well worth it when you consider the many tens of thousands of added salary you will earn from them over the coming years.

You'll find much about this topic in the survey results article linked above. Here's some info on average cost of certification of survey respondents:

The overall costs of certification, including study material, the exam price and more, also proved to be less expensive. According to the survey, about 44 percent of respondents reported spending less than $500 overall. The average dollars spent dropped from $2,580 last year to $1,781 in 2006, a drop of more than 30 percent.

Instructor led exam preparation was in high demand:

Instructor-led training was ranked extremely or very valuable by 45.4 percent of respondents, and product documentation was ranked extremely or very valuable by 40.3 percent.

And, don't hesitate to ask your employer if they will pay the exam, preparation, training costs for the certification. You may be pleasantly surprised!

In most cases, either the respondent or the respondent’s employer paid 100 percent of the cost of certification — there was little sharing of cost or reliance on grants or scholarships.

Teaspoon's 2008 Financial Goals

This is Teaspoon's resolution for 2008 ;-) ... I encourage you to create your own. Stop by Cash Money Life and check out how you can submit your resolution. You could win an iPod (you don't need a blog you can just email Cash Money with your resolution by Dec 5th) ... so give it a try!

For myself, this is a great way to set some 2008 goals:

1. Post at least one post a week!
   I've been lacking here, as of late, while I do some studying for a professional certification. I really miss posting and love to ponder think about financial matters. So, I should at least give myself the opportunity at that fun once a week :-).
2. Start to generate real estate investment income
   One way or another I'd like to get some Real Estate investment income in 2008 started. I plan to either rent out current property and get a new place or as soon as I sell current property and move into a new place, get an investment property online in 2008.
3. Have 0 revolving debt in 2008
   It's been a long time coming for Teaspoon, but I should finally hit 0 revolving debt in 2008. That means lots more cashflow and freedom ... hurray! Be sane with that cashflow and start investing it. Plan will now be building a non-retirement portfolio and that should be fun.
4. Maximize ESPP Free Money!
   Teaspoon's been focusing on maxing out 401k contributions and paying off debt. So, with the debt gone, it's going to be so nice to start to get all that ESPP Free Money! Remember this post? >>> Your Personal Stock Market Army - The Stop Loss! It had a great concept on maximizing your free money that's available to you from ESPPs:

I love free money with ESPP's. If you have an ESPP available at your employer, this is like free money and the stop loss can maximize your profits and limit your loss of profit. What I do, is every time my employer buys my ESPP stocks, I immediately (the day it becomes avail in my broker account), go in and set up a trailing stop loss of 3%. I encourage you to adjust your %percentage based on your stocks volatility. 3% for my employers stock works perfectly. If the stock keeps rising, then I keep locking in more and more profit. As soon as it turns around, it's sold for me automatically.

Funny Story - Plutonium or Spare Change?

Recently I bumped my fun-money savings ratio, just out of sheer annoyance and maybe some back-strain. I have this BIG JAR (actually a 5 gallon jar) that I have saved coins in for a couple years. I hate spending coins, so I pop them in there and see how much it will add up to. When I finally filled it almost to the brim, I was going to vegas :-).

Well, recently it was nearly full and I decided I needed to cash it in. With that puppy nearly filled I almost broke my back with 2 trips to the bank hauling change in my backpack to cash it in. I mean, the backpack was busting at the seams. I swear I must have looked like someone carrying plutonium or something!

It was a hefty $1000+, that easily paid for some fun in Vegas! For those of you curious how much change you've amassed, Coinstar has a handy little trivia estimator on their site (example: 1 gallon of change is estimated to be worth $228.34) Cool :-).

So, after that I decided not to focus on the change and instead focus on $1 bills. So much easier to carry $50 to the ATM adn deposit. Since then my savings rate for fun-money has tripled. Which tells me I'm having too much fun, or I need to tighten up the screws on my automatic withdrawal savings to my 401k, ESPP, or Mutual Funds :-(.

Carnivals - For Week of 9-3-07

Teaspoon Finance posts appeared this week in the following Carnivals. I picked my favorite post at each carnival:

• Carnival of Debt Reduction #103: Soon to be DEBT FREE!!! hosted by DebtFree-Revolution
  Favorite Post:
  NCN presents 33 Days And 33 Ways To Save Money And Reduce Debt posted at No Credit Needed
  
  
• 90th Festival of Frugality hosted by Bean Sprouts
  Favorite Post:
  FMF presents Great, Cheap Way to Learn Building Skills - Volunteer to Build a Habitat for Humanity House posted at Free Money Finance saying " A cheap way to learn building skills and help people at the same time!"
  
  
• Carnival of Personal Finance #116 - NSA Edition hosted by Advanced Personal Finance
  Favorite Post:
  Golbguru from Money, Matter, and More Musings asks, “What are your money leaks?” Did somebody say ‘leak?’
  
  
• September 4, 2007 edition of Carnival Of Everything Finance hosted by Everything Finance
  Favorite Post:
  Jimmy Atkinson presents The Day Trader's Toolkit: 100 Free Online Apps for Professionals posted at Forex Blog.
  
  
• Festival of Funny Financials: #1 hosted by Indebted 2 You
  Favorite Post:
  Currency Trading gives a well-written smiler detailing 11 reasons poker players make great Forex traders.
  
  
• 24th Carnival of Money Stories hosted by Enough Wealth
  Favorite Post:
  Shadox presents The Most Expensive Loan in History posted at Money and Such.
  

I encourage you to stop by and find your favorite personal finance posts.

Your Personal Stock Market Army - The Stop Loss!

Stop losses can bring you peace of mind, profit, and minimize your losses.  If you own stocks right now and don't know what a stop loss is, then I encourage you to sit a spell, grab some coffee or tea, and sip of this important information. If you own stocks right now and know what a stop loss is, I sure hope you're using them.  If not, then please stick around for a spell.

I had a friend many years ago that was complaining about his troubles investing in stocks.  He never seemed to make a decent profit on winners and he always seemed to collect a bunch of losers and never knew when to get rid of them.  I told him I'd listen to his troubles and offer advice where I could.  He had close to a million dollar portfolio invested in individual stocks.  Man was I envious of his assets!  But, not of his investing skills.  I asked him a simple question: "Do you have sell prices or sell ranges for all the stocks you own?".  His answer: "Not on a single one."  He allowed the market and his financial needs and emotions dictate when he would sell something.  After our couple hour discussion, of basically what you'll be hearing below, he vowed to have stop losses set on all of his stocks within the next week.  Note: at that time, there wasn't such a thing as trailing stop losses available on most online broker sites, so now days it's even easier!

I've heard his thanks many times since for introducing him to the power of the stop loss.  You definitely want to get educated on the stop loss as your most important weapon in the war of personal finance with respect to stock investing. Keep in mind this is stocks, not mutual funds. With mutual funds, you are diversified. With stocks you are putting all your eggs in one basket, as they say. This can be a very risky proposition and you need some protection. Sometimes you need protection from yourself, and your ability to rationalize and accept deeper and deeper losses. Here's where the stop loss comes to the rescue!

What is a stop loss? Here's a quick definition from wikipedia:

With a stop order, the customer does not have to actively monitor how a stock is performing. ...Once the stop price is reached, the stop order becomes a market order. ...A sell stop order (also stop loss order) is an instruction to sell at the best available price after the price goes below the stop price. ...This can limit the investor's losses (if the stop price is at or below the purchase price) or lock in some of the investor's profits.

There are 2 types of stop losses at many brokers and online brokers now:

1. Traditional Stop Loss
   Traditionally with the stop loss, you would select a price point at which you wanted to sell if the market price went below that price. If this is the only kind available at your broker or online broker, then please do use it. The use of the traditional stop loss might require a little extra maintenance on your part, as you monitor and decide to ratchet it up to lock in profits or limit losses.
   
2. Trailing Stop Loss
   The traditional stop loss requires regular maintenance if your stock price is on the move and you would like to efficiently lock in profits or further limit your losses. It's great that brokers have added the trailing stop loss as an option with brokers and online brokers. This allows you to set a stop loss margin that will follow an increasing price. You typically have the option of choosing a trailing stop loss by $Dollar Amount or by %Percentage. I love this, because you can choose to follow a rising stock price with a trailing stop loss of for example: 5%. That way, as a stock price continues to rise, you'll be locking in a profit that is 5% below it's high price. The 5% gives the stock enough room for volatility as well as ensure that your locked in profit continues to rise.
   

I propose that you should never own shares of stock without having a stop loss placed on them. Quite simply, it is human nature to keep accepting a lowering stock price without selling. You begin to rationalize at every new red flag in the lowering stock price: the news just isn't good, I know they'll be announcing a new product soon, people just don't know enough about them yet, stock prices generally go back up, I'll just wait till I get back to even and then sell, etc.

We should be quite the opposite with stock investing, we should not be emotional. We should think of stocks as a vehicle for our investments, and one stock is just like the next. There is nothing magical about the current stocks you own. If they are losers, then get rid of them, learn and improve your stock picking rationale and pick again. If you have winners, learn aspects for picking winners. Lock in profit for winners. Don't allow winners to become losers, because you got attached emotionally because it used to be a winner.

I encourage you to learn a method of picking and evaluating stocks that works for you. For me, it's CANSLIM. CANSLIM defines a method of evaluating and picking stocks and was created by William J. O'neil. I recommend you to look at these books in the library, bookstore, etc: How to Make Money In Stocks and The Successful Investor: What 80 Million People Need to Know to Invest Profitably and Avoid Big Losses.

Again, i propose that you should never own a share of stock without protecting it with stop loss. I'll break that down to 3 three powerful reasons for having a stop loss:

1. Limiting Loss
   When you own a stock, you should do some regular self assessment as to what is a reasonable loss you would accept for the stock. Whether you do this weekly, monthly, quarterly, just do it regularly. Once you set your stop loss, you have now protected your investment from a pre-determined loss. This is key, because human nature would have us complacent and rationalize a declining price at every turn with the hope that the price would soon recover. But, by thinking ahead of time, you take this emotional and fear based thinking out of the equation and treat an investment in a proper way, as a vehicle of investment. You take the time to think rationally about what amount of loss you are willing to accept if a stock moves against you. You limit the loss, because you take out the changing emotions that will occur as that stock becomes a loser and you would inherently start rationalizing the losses. I don't care if you're a long term investor or short term. If you're long term, then you'd just increase the margin of your trailing stop loss to not be triggered by normal volatility.
   
2. Locking in Profit
   When you are lucky enough to own a stock that is appreciating in value, you should be protecting that growing profit. I used to ratchet-up my stop loss on a weekly or monthly basis as stocks kept growing in value. Now days, they have an awesome new kind of stop loss, they call the trailing stop loss. This means you can set the stop loss to trail the rising price by a dollar amount or a % amount. This is an absolutely powerful feature!
   
3. Peace of Mind
   Probably the most important benefit of the stop loss is the peace of mind you'll enjoy. You'll sleep peacefully every night. You'll feel at ease throughout the week, without submitting to the need to check your stock prices hourly to see if you are ahead or moving behind. This is all because you put in place your hard working army of individual stop loss soldiers on each of your stocks.

I love free money with ESPP's. If you have an ESPP available at your employer, this is like free money and the stop loss can maximize your profits and limit your loss of profit. What I do, is every time my employer buys my ESPP stocks, I immediately (the day it becomes avail in my broker account), go in and set up a trailing stop loss of 3%. I encourage you to adjust your %percentage based on your stocks volatility. 3% for my employers stock works perfectly. If the stock keeps rising, then I keep locking in more and more profit. As soon as it turns around, it's sold for me automatically.

I also do this when I have lost confidence in a stocks upward momentum (can be due to market news, stock news, etc.) and it begins to move sideways. I'll reduce the % of trailing stop loss, to still gain from upward momentum and at the same time press the sell sooner than later.

If you didn't hear me before, I'll close with the same thought: I propose that you should never own a share of stock without protecting it with a stop loss. You'll benefit greatly from the peace of mind in your daily life, knowing that you put in the up front thought and made decisions on what loss you are willing to handle for each of your stocks. You'll feel at peace that you're profits are automatically being locked in as your trailing stops chase after a rising price.

Carnivals - week of 8-27-07

Teaspoon Finance posts appeared this week in the following Carnivals:

• Carnival of Personal Finance hosted by Free Money Finance
• Carnival of Debt Reduction #102 hosted by Mighty Bargain Hunter
• Carnival of Money Stories #23 - The FIRE Edition! hosted by Fire Finance
• The 89th Edition of the Festival of Frugality hosted by Filam Personal Finance
• Carnival of Smart Money #1 hosted by My Money Thinks

I encourage you to stop by and find your favorite personal finance posts.

Solving Our Savings and Budget Issues - The No-Budget Budget Way

Our budget and savings goals always seem to be at odds with each other. The more we want to save, the more our budget's suffer and the more we budget, the less we always have left for savings. The struggles are not easy nor are the solutions. While it seems like more money is the only solution, we shrink at the task of balancing our budget and explaining why our savings accounts just aren't adding up. I'd like to propose a way of looking at handling your savings and budgeting that has worked for me for the last 10 years, I call it the no-budget budget.

Budgets and money issues are tough to deal with and incredibly stressful. The issues we have with our budget and savings can actually be symptoms of common mental disorders, like described in this article by Liz Pulliam Weston:

The manic or "high" phase of bipolar disorder, for example, is characterized by impulsive and often self-destructive behavior, which can include big shopping sprees, said Los Angeles psychiatrist Deborah Nadel.

Overspending likewise can be an issue with depression, Nadel said, as those afflicted try to distract themselves and alleviate their distress with purchases. Feelings of hopelessness can make it difficult to plan for the future or to care whether the bills get paid.

The symptoms that define ADHD -- impulsivity, inattentiveness and/or hyperactivity -- make finances a trial for many who have the disorder. Problems with planning and organizing stymie their attempts to deal with even simple money tasks, like bill paying, while lack of impulse control can result in big credit card debts, over-limit fees and bounced cheques.

We've heard at one time or another that financial problems are the most common cause of relationship problems. According to this article: money is the number one reason for divorce. We all have enough stresses in our lives that challenge us. Let's try to look at solutions to lessen those stresses involved with building our savings and creating or balancing our budgets. You may already be incorporating some aspects of this. If not or if only in part, I encourage you to take some time to digest these thoughts when you next sit down to work on your financial matters. I think these methods can be a step or two towards relieving the stresses on our minds and relationships.

I always enjoy an opportunity to refer back to the book that started me on the right track regarding personal finance: The Richest Man In Babylon. There are many great concepts in the book, that we can always find new ways of interpreting. The two that resonated most with me for budgeting and savings and make up the no-budget budget are:

"For every ten coins that thou placest within thy purse take out for use but nine. They purse will start to fatten at once adn its increasing weight will feel good in thy hand and bring satisfaction to thy soul"

"Budget they expenses that thou mayest have coins to pay for thy necessities, to pay for thy enjoyments and to gratify thy worthwile desires without spending more than nine-tenths of they earnings"

When you think about these principles, they are the key to what I've called my no-budget budget. I started using this method about 10 years ago, because I just couldn't keep a budget. The more I tried to concentrate on a budget the more I seemed to mess something up. Whether it was a missed payment, a ding on credit score, a late fee on a credit card, final notice on a bill, someone not getting paid, etc. I'm sure you have many more examples from your own experiences. I'll cover the basics of the no-budget budget and then touch on some ideas of how you can add more sophisticated touches over time (I'm sure you'll come up with many many more of your own).

The Basics
In it's most basic form the no-budget budget is comprised of:

1) Automatically Saving 10% of your take home pay:
If you have 401K, ESPP, or any other kind of employment plan that allows you to automatically withdraw from your paycheck, then do this with a minimum 10% withdraw of every paycheck. At a minimum, write yourself a check or withdraw 10% to your savings account each paycheck. THIS IS THE FIRST CHECK OR WITHDRAWL, WITH EACH PAYCHECK!

2) Pay all Necessary Bills Next and Prioritize Remaining Bills:
Bankrate has a great article that discusses in more detail a prioritization plan. Basically pay in order of necessity to living month to month. First the bare essentials for food and medical expenses, then the mortgage, or rent and insurance. Then pay car loans (if they are necessary to work transport), then make all minimum payments to any revolving lines of credit, so that credit history won't be harmed. Finally, utilities.

3) Remaining Funds:
This is what you have left till the next paycheck. In essence, you've forced a budget for expenses beyond bills to this amount. Here's where sophistication comes in to increase the remaining funds each paycheck and to increase the effectiveness.

4) Maximize Your Payments to High Interest Debt:
Out of the Remaining Funds try to have an ever increasing percentage going to reducing revolving credit accounts.

Modifications to The Basics
Here are some suggested modifications you can make over time. You will, yourself, come up with many modifications each month as you try to increase efficiencies and savings.

1) Automatically Saving 10% of your take home pay:
The most advantageous savings you can do with your 10% is to apply it all to your 401k until you max out your 401k. What does this do for you? It increases the amount of your take home pay, because 401k deductions are taken out of your check as pre-tax income. Also, this 10% savings can be so much more, due to matching that companies usually do, as well as the tax savings due to tax deductibility. If you don't have a 401K available, then try to fund your IRA, this allows you to increase your tax deductions. If you already normally receive a tax refund, then by making tax deductible contributions will increase your refund, so you can make another sophisticated tweak to your w-4 tax deductions at work to increase take home pay and reduce the likelihood that you'll receive a tax refund. Use this calculator at the IRS site to help you with that. Another modification that you can add to this step is that you can ratchet up the automatic savings percentage each paycheck. At first, you should notice (especially with pretax deductions) that you won't miss the 10% that much. So, start tweaking the savings until you do notice or it get's too difficult.

2) Pay all Necessary Bills Next and Prioritize Remaining Bills:
You should definitely look at the prioritization suggestions at bankrate above for ideas. I usually like to focus on mortgage, car payment, insurance, minimums on credit cards, and then utilities last, other bills. Utilities are one of those negotiable's that you can usually make arrangements if you really need the cashflow for a period of time (i.e. negotiate payment plans, etc. and all of this doesn't hurt your credit scores). The main focus is to never allow any payments that are necessities to live be missed as well as any payments missed that could have a negative effect on your credit scores.

3) Remaining Funds:
You can always tweak things here, like finding bills to save on or cut out entirely. Do you have a netflix or other type of auto-pay account that you just haven't used in the last couple of months? Review your statements for those pesky autopays that just aren't being used and can be canceled. Take a critical look at any other bills and expenses you can reduce or cancel if not really needed or used (cable, phone, Internet, club membership, etc.).

4) Maximize Your Payments to High Interest Debt:
Focusing on eliminating high interest debt is like closing a leak in a dam. The more high interest debt you have, the more you're losing opportunities to save or pay bills with that money. Ways to help here and tweak and expand your monthly budget are many. Some of my favorites are: Taking advantage of 0% credit card offers, Consolidating debt with a HELOC Loan, using emergency fund cash to paydown high interest credit cards. First, I want to say about emergency fund cash to paydown, should only be used if you have your credit issues in control and won't just build up your credit cards again. In this case check out my post on now supplementing your emergency fund cash with a credit emergency fund. If you plan on using 0% or low interest balance transfers, again be sure you have your credit issues in control to avoid getting deeper into credit problems. The suggestion is that you use balance transfers to get yourself out of the high interest and it means that more money goes to paying down the debt. Accelerate and knock out that high interest debt as aggressively as possible and you'll be rewarded with a greater cash flow for your future no-budget budget!

Carnivals of Fun For Personal Finance Posts #3

This week a there have been some great personal finance carnivals out there.  I encourage you all to stop by and take a look at all the great posts.  I guarantee you'll have hours of enjoyable reading and find some new favorite posts.  Teaspoon Finance is proud to have a post participating in the following Carnivals.  The Teaspoon Finance post participating this week at these carnivals was: Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

Carnival of Personal Finance
This weeks Carnival of Personal Finance #114 is hosted at The Simple Dollar.  Trent at The Simple Dollar spent a ton of time reviewing the 60+ posts submitted and choosing his editors choice posts.  I confess that I haven't had a chance to read all the posts, yet.  I plan to by this weekend.  I did go through and read all the titles that caught my eye and from those, read many many of the posts.  From those, I found 2 that are my favorites from the Carnival of Personal Finance #114. I covered these in: Carnivals of Fun For Personal Finance Posts.

101st Carnival of Debt Reduction
This weeks 101st Carnival of Debt Reduction is hosted at I've Paid For This Twice Already...  Paidtwice reviewed 25 posts submitted and I'm very excited that Paidtwice picked Teaspoon Finance's post as their favorite!  I've reviewed all of the posts at Paidtwice and I'm sure you're going to find some great info and new insights into personal finance in one or more of the 25 posts.  You can find more about my favorites at: Carnivals of Fun For Personal Finance Posts #2

Festival of Frugality
This weeks 88th Festival of Frugality - About Me Edition is hosted at The Happy Rock.  The Happy Rock reviewed 35 posts submitted and you can visit to find all of them.  I was happy to have my post in their carnival.  I read through all the posts and here are my favorites from the Festival of Frugality:

• Why We Shouldn’t Be Careless With Automatic Bill Pay and Why The Pentagon Should Really Use FedEx For Shipping by MoneyNing
  I liked this post, because it served as a reminder of one of those pesky things that I keep on my mental to do list, but never really get to regularly enough!  Stop by and check this one out.  Make sure you're not making someone rich, by being too trusting and lazy.
• eight ideas for saving money on books by plonkee money
  Another great post to save some money on something that 'really' adds up, books!  Like plonkee, I find myself reading the covers and a couple of pages, and then grab this book and that book.  Then when I get home with them, I'm not always satisfied.  This is a great reminder for me to take a little more time browsing at the bookstore (they really encourage it with all the comfy couches and chairs).  Also, get my library card going again.  I haven't visited my library in the last 3 years, that's not good.
• Baby Steps to Wealth: My $2 a Day Challenge by Frugal Duchess
  I always love reading about how folks incorporate baby step approach to all areas of self improvement.  This is another great example.
  

OK, I think I'm sticking to 1 carnival a week from now on.  This is a lot of reading, I'm enjoying it.  I just need some recovery time to process all these great ideas that I have rolling around in my head after the reading fest.  I encourage you to stop by the carnival sites and read through and find some new favorite posts of your own.

I think that's it for this week :- ), otherwise ... I'll be following up with any additional Carnivals that Teaspoon Finance was a part of with my post: Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

Update (Listing of additional carnivals):
The following additional carnivals had the following post from Teaspoon Finance participating: Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

Carnival of Debt Management #21
This weeks Carnival of Debt Management #21 is hosted at Debt Consolidation Lowdown.  They had 31 posts in the carnival.  I encourage you to stop by and find your favorites!

Carnival of Financial Planning
This weeks Carnival of Financial Planning is hosted at The Skilled Investor.  They had over 45 posts in the carnival.  I encourage you to stop by and find your favorites!

Carnivals of Fun For Personal Finance Posts #2

This week a there have been some great personal finance carnivals out there. I encourage you all to stop by and take a look at all the great posts. I guarantee you'll have hours of enjoyable reading and find some new favorite posts. Teaspoon Finance is proud to have a post participating in the following Carnivals. The Teaspoon Finance post participating this week at these carnivals was: Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

Carnival of Personal Finance
This weeks Carnival of Personal Finance #114 is hosted at The Simple Dollar. Trent at The Simple Dollar spent a ton of time reviewing the 60+ posts submitted and choosing his editors choice posts. I confess that I haven't had a chance to read all the posts, yet. I plan to by this weekend. I did go through and read all the titles that caught my eye and from those, read many many of the posts. From those, I found 2 that are my favorites from the Carnival of Personal Finance #114. I covered these in: Carnivals of Fun For Personal Finance Posts.

101st Carnival of Debt Reduction
This weeks 101st Carnival of Debt Reduction is hosted at I've Paid For This Twice Already... Paidtwice reviewed 25 posts submitted and I'm very excited that Paidtwice picked Teaspoon Finance's post as their favorite!

My favorite article this week was from Teaspoon, with Do You Have an Emergency Fund? - If Cash is King, Then Don’t Neglect His Good Looking Brother, the Prince of Credit! posted at Teaspoon Finance . Honestly, I loved this article, despite the fact that I don’t agree with the whole basic concept presented in it. It is a well-written, very well-thought out discussion and drew me in despite the fact that it is contrary to my opinion. Enjoy!

I've reviewed many of the posts at Paidtwice and I'm sure you're going to find some great info and new insights into personal finance in one or more of the 25 posts. I had fun going through the posts at Paidtwice. I actually read every one of these carnival posts! Here's my selection of 3 favorites that I enjoyed most:

• glblguy with Key Steps You Can Take Now To Get Out of Debt posted at Gather Little By Little
  OK, I love posts that have tidbits of wonderful wisdom that I may or may not have heard before and intended to implement, but haven't. They're like little reminders to say "Um, you know I'm right, now when are you gonna put me to work?". This post has a great little tactic that I've read about before and loved, fully intended on implementing, but never have. I'm losing money every day by not even trying! Please don't let this happen to you. Get over there and read this post. Oh, what's the wonderful little tidbit? It's listed as #3. Reduce your interest rate. Now go learn and become enlightened by this and more :-p...
• David at My Two Dollars brings the next installment of his excellent “Get out of Credit Card Debt” Series, The Start Digging Out Of Credit Card Debt Challenge - Week Five.
  David also gets my attention as a favorite for a couple of reasons. First, same as above, he touches on that little tip of reducing your interest rates in this week five of the series. The other thing I like is that this is part 5 in a series of great info and several steps to help reduce credit card debt. I'll be keeping an eye out for future installments. I love info in bite sized chunks and David puts that together in this series. From this week five post, you'll find his links to previous weeks. I definitely encourage you to start reading from week one, read them all and look to see what items you want to start taking a bite and chewing on for yourself or a loved one! Definitely read week two for a scripted example of asking for rate reductions. Any system is great, as long as you pick a system or process and go with it. I love David's methods, even though in this latest mortgage meltdown I like approaching from a different angle (i.e. reducing debt in a little more costly method to save big on refi's, as it has maximum short term impact on FICO scores, for those that need to do a refi soon). No matter what, go out and lower your rates, I hope to this month!
• FMF presents Your Bad Credit Could Cost You $1 Million posted at Free Money Finance
  Love this post! Check it out and learn the importance of keeping your credit healthy. I've never quite seen it in this perspective. I really love this whole concept of monetizing opportunity costs of bad credit.
  

Wow, that was some fun reading! I think there's one or two more carnival's to go and I'm out of energy for now. I'll have to get with them much later today. I encourage you to stop by the carnival sites and read through and find some new favorite posts of your own.

I'll be following up with additional Carnivals that Teaspoon Finance was a part of with my post: Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

Carnivals of Fun For Personal Finance Posts

This week a there have been some great personal finance carnivals out there. I encourage you all to stop by and take a look at all the great posts. I guarantee you'll have hours of enjoyable reading and find some new favorite posts. Teaspoon Finance is proud to have a post participating in the following Carnivals. The Teaspoon Finance post participating this week at these carnivals was: Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

Carnival of Personal Finance
This weeks Carnival of Personal Finance #114 is hosted at The Simple Dollar. Trent at The Simple Dollar spent a ton of time reviewing the 60+ posts submitted and choosing his editors choice posts. I confess that I haven't had a chance to read all the posts, yet. I plan to by this weekend. I did go through and read all the titles that caught my eye and from those, read many many of the posts. From those, I found 2 that are my favorites from the Carnival of Personal Finance #114:

• 110 Personal Finance Calculators (@ millionaire mommy next door)
  Now this was an amazing piece of effort by the millionaire mommy to put together this amazing resource list of calculators. I plan to have fun browsing these calcs over the coming weeks and I'm sure they're going to give me lots of wonderful ideas :- ). I'm sure you'll find at least one, if not several here that are of immediate interest!
• How To Know Instantly You’re Being Conned (@ dough roller)
  I've been watching Mind Control with Derren Brown on the SciFi Channel recently and that dude can have your mind reeling! So, previously to that show, I figured, 'Hey, I probably can't be conned. I'm a very logical street wise Joe'. But, after this show, geeze, there's just may be a whole new level of con men out there. I enjoyed dough roller's post and it has some great advice on thinking about those 'too good to be true situations'. Definitely check this out. If you don't think you can be conned, go check out an episode of Mind Control on SciFi channel and you'll be back at dough roller's site double checking ;-)!

Wow, that was a lot of reading! I couldn't read all 60+ articles, but definitely viewed all post titles and read through each post that caught my eye. I encourage you to stop by the carnival site and read through and find some new favorite posts of your own.

I'll be following up with additional Carnivals that Teaspoon Finance was a part of with my post: Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

Zen and The Art of Personal Finance in 4 Steps

We have web browsers that let us tab through 10 different websites in seconds. You can kick off your TPS reports processing, while you skim through your email. You can do all this as you listen to your favorite tunes on your cell phone, and driving down the highway, while your cellphone also hollers out GPS directions to that favorite restaurant and politely pauses while you receive a call! Ok, that would be a seriously dangerous driver, but I doubt it's far from the truth for some current road warriors.

Technology seems to encourage us and our children to multitask-everything. I've always experienced the greatest personal strides in life, when I've reduced the clutter and focused my thoughts and efforts. Kind of reminds me of my limited understanding of just a few of the principles of Zen. Perhaps the learning's from Zen can be applied towards personal finance. I've always been intrigued by the various Art of Zen books and haven't seen one on the topic of personal finance, yet. So, let's take a high level journey as to what one of these books 'might' cover. This isn't considered a how to of personal finance, as much as it is an exploration of some alternative methods of how we might learn about and practice our lessons in personal finance.

Step 1: Zen What?
Quite simply Zen is a flavor of Buddhism, where learning from experience is favored over that of any religious texts. In it's depth, Buddhist monks can spend a lifetime achieving the wisdom of it's highest teachings.

Westerners have westernized our perspective of Zen in various pieces of literature like: Zen in the Art of Archery, The Dharma Bums, Zen and the Birds of Appetite, and the bestselling Zen and the Art of Motorcycle Maintenance. Now, many Zen and the Art of ... topics follow this framework. Which is to subtlety introduce the Zen mentality to contemporary subjects. Even more simply the basic steps to performing any activity (i.e. Zen and the Art of Personal Finance).

Like Zen and Art of Motorcycle Maintenance, this post doesn't seek to enlighten on aspects of Zen Budhhism. As an excerpt from the book on wikipedia points out:

He explains that, despite its title, "it should in no way be associated with that great body of factual information relating to orthodox Zen Buddhist practice. It's not very factual on motorcycles, either."

So, the focus of Zen that I'll follow in this post is the subtle application of some of the principles of Zen to benefit our personal finance learning. Namely Zen's principles of understanding of oneself, kind thoughts, right action, and right effort.

Step 2: Zen of Your Finances
One of the principles of Zen is to understand oneself. Look into your self and see what methods have been best for you to learn new information in the past. Do you need repetition? Do you like analogies? Do you just like to digest the straight facts? Are you a logical person, and you must see the how and why before it becomes organic to you?

Never be to quick to make personal finance decisions. Sometimes taking some time to sleep on it is better advice than we realize. Allow yourself to meditate on new decisions, information, and problems. Zen is based on the ability for the practitioner to learn from their inward meditations on a problem. Some Tibetan monks even beleive that dreams are the key enlightenment. Great figures in history have practiced the art of lucid dreaming to unravel some of the greatest discoveries.

Albert Einstein claimed the inspiration for his Theory of Relativity came to him while in a dreamlike state, and Dmitri Mendeleyev, a 19th century Russian chemist, reportedly fell asleep at his desk and awoke after conceiving the Periodic Table of Elements in a dream.

Personally, I've discovered about myself, that I learn best when I chunk down the information into bite-sized pieces. I like to digest it so that it logically makes sense to me. Once that's done, I'll go further. This way it's organic in my way of thinking about that information I've learned. Now, this isn't saying that I've learned the right info or the best info, just that I've digested the information so that it makes sense to me.

Now, this is different then the way I learned information in college. In college, the pace was fast and I didn't digest or make things organic. I'm sure there are some folks that did and retained a higher percentage of the information. But, I wasn't that lucky. A new method of learning for me has been these blog posts. A recap of lessons I've learned and how my opinion and views change as I read some of the great personal finance blog posts and articles out there.

To recap, do a self assessment of how what methods have been best for you to educate yourself with new personal finance topics and information.

Step 3: Zen of the Kind Thought and Right Action
Two more of the principles of Zen are those of Right (or Kind) Thought and Right Action. I would translate these to personal finance education as to think and take action that is kind and just. Hopefully this will keep us away from the get rich quick scams and paths.

If we aim at educating ourselves with personal finance topics that opposed to ill will and are mindful of the rights of others, then we will be doing good in the world. This is obviously going to be a to each their own type of topic.

I'll take an example of a method of real estate transactions that I read in several different books. The methods talked about lease-option transactions for buying and selling. Some books and information addressed this topic rather coldly without a real regard for the well being of those that are in a financial bind. Whereas other books discussed how you can use these methods to help folks that would otherwise not be able to get a conventional loan right now (but, put them in a position to qualify in a year or two). This was revelation with lease options, that finally had me thinking of them as viable tools. Otherwise, I just wasn't seeing myself profiting by putting together any transaction I could.

To recap, look for the silver lining in a learning or piece of education. How can this be used in good way or a win win way. If it seems too good to be true and not considerate of all parties involved, then it probably isn't a very good tool or learning.

Step 4: Zen of Right Effort:
Another of the principles of Zen is that of Right Effort. Right Effort basically means once you've learned, you must put it into practice. At the ZenGuide, they put it this way:

Effort is the root of all achievement. If one wants to get to the top of a mountain, just sitting at the foot thinking about it will not bring one there. It is by making the effort of climbing up the mountain, step by step, that eventually the summit is reached.

This is by far my favorite principle. It puts everything together and can be practiced at any point in our personal finance lives to achieve goals. We're always learning new tactics and strategies. Let's face it, when someone tells you I have the secret to making 1 million dollars, we drool until we get the information. But, once they give us the book, or the url to the information, we get a little complacent. It's a basic instinct to feel at ease, because now we know where the information is when we feel like we want it.

Same can be thought of when we actually learn these cool ideas we find no all the great personal finance blogs out here. I mean, geeze, did you know you can immediately get double-digit returns on your money? Yea, start paying off your credit cards that have double digit interest, wallah! Did you know that you have free money from your company and Uncle Sam every year to save for your retirement? Yea, just add to your companies 401k and you can see 50% returns in some cases when they match 25% or 50% immediately. Not to mention the extra 25% that Uncle Sam gives you in the way of tax deductions to retirement savings.

Now these and many more tips can save or earn us thousands, tens of thousands, or hundreds of thousands over a lifetime. BUT THEY WON'T, unless we decide to put them into action. Every day we procrastinate to start up our 401k, pay off our high interest credit cards with our savings, etc. is savings and money lost.

The Fed Discount Rate Cut - What Does it Mean to You and Me?

Thanks to the recent rate cut by the Federal Reserve, things should be looking up in the financial markets. The fed discount rate was just cut from 6.25% to 5.75% on Friday. The move was designed to bring some sanity back to the market that has been uneasy with the subprime mortgage issues.

According to an article on MSN Money, the fed discount rate cut has already had an impact:

Analyst Robert Lacoursiere said Countrywide's move Thursday should help address its liquidity concerns...

Another MSN Money article speculates this is just the move needed to alleviate the problems with the latest mortgage meltdown:

If I'm right, the market will turn around when the hedge funds have raised enough money to cover their margin calls. When is that going to be? It depends on the collateral value of the subprime mortgages that the hedge funds have decided to keep. This is why today's Fed announcement is so important.

Much of this positive outlook is due to the fact that the fed announced that subprime mortgages can be used as collateral. This means that banks will be able to once again sell their troubled subprime mortgages to pay for their credit lines.

For you and me, this is good news and means that mortgage brokers will be able to find funding again for their subprime mortgages again that they have been previously frozen out of. Last week it was sounding like only those with the better credit were going to be able to get loans, but now the market for subprime should be opening up again.

The feds rate cut by 50 basis points also leaves room for a future move, if this isn't effective enough (i.e. to still cut by another 25 or 50 basis points).

Quiz: Your Most Important Financial Asset. What is it?

If you're like me, you might not have thought of the right answer. This is also one of the reasons I love to browse through the articles over at Ric Edelmans financial planning site, I'm always sure to find a new bit of financial revelation! Ok, in case you're holding your breath I don't want you to pass out. You're most important, or as Ric put's it your largest financial asset is your ability to produce an income.

Ric's article talks about the importance of protecting this prized possession:

For almost everyone who is still working, your largest asset is your ability to produce an income. Thus, the most important type of insurance is disability income insurance (DI). You need it more than any other kind of insurance — more than life, health, homeowners, or auto insurance.

Now, that blew me away. It's never been the topic of financial discussion for me before. I always choose no, no, no, on those pesky credit card applications and phone calls to activate your cards. They try and tell you that for penny's a day you can have all your credit card payments taken care of if you're disabled.

Like everyone else, I just couldn't justify it in my head. Now that little credit card disability insurance is similar, but not exactly what we're talking about. We're talking about insurance that covers a percentage of your income, in the event you become disabled. Like many folks I felt it was adequate enough to opt into the insurance my employer provides. These typically pay about 60% of your income if you're disabled, and have a limited payout period. This just isn't enough.

He talks about 2 big reasons that folks usually don't bother thinking too much about it:

Reason#1: "It won't happen to me"

Reason#2: "It's too expensive"

After Ric hits you over the head with all the reasons why it's such an important financial decision, it really makes sense. I'm off to talk to my insurance agent this week and get me some disability insurance.

I'm going to focus on filling in the gaps from my employers insurance. This should help reduce costs. I have some I got through work a long time ago, but I don't think that quite gets to the point of protection that you really need. If you have availability of disability insurance through work, and never really thought about it, take a second look and get as much as you can. As discussed in another article about getting the most out of your company's benefits:

Life, disability and long-term care insurance. If your employer pays for these coverages, get as much as you can. But if you must pay for some or all of the cost, talk to a financial advisor or insurance agent to see if you can get lower-cost coverage elsewhere.

It's a serious expense that seriously pays off if you need it. Obviously I hope none of us need it, but like any other type of insurance (the case can be made that it's more important than other types!), you want to be prepared. Bottom line, if you earn a living, then you will benefit greatly from disability insurance and it deserves some serious thought and discussion.

What's Your Net Worth Grade?

I was curious about what the average net worth is at my particular age to see how I'm performing. The wonder of the web, is that if we want it we can probably find it. I found it. CNN Money has a nifty little calculator to give you an idea. You plug in your age and income and it will give you some stats. For example, I plugged in 40 years old with annual income of 70K, here's what I found out:

Median Net Worth For Your Age Is: $44,875

Median Net Worth For Your Income Is: $109,975

OK, that was cool. I now have an idea of how I'm doing against some national averages. Surely I could find more stats. But, of course. Here's another good site, NetworthIQ.com, you can browse for stats on age ranges and it looks like more details if you register. Here it looks like you browse data of actual members. A quick browse through all data for ages 40-44 shows a median of about 324K. Hard to tell how accurate this is and how inflated the data may be.

I kept searching and found that Free Money Finance did some digging in one of their posts Median Net Worths - Are You Ahead or Behind? I liked this one, as I found I'm doing ok:

Age: 20-29
Median Net Worth: $7,900
Top 25%: $36,000
Top 10%: $119,300
Age: 30-39
Median Net Worth: $44,200
Top 25%: $128,100
Top 10%: $317,800
Age: 40-49
Median Net Worth: $117,800
Top 25%: $338,100
Top 10%: $719,800
Age: 50-59
Median Net Worth: $182,300
Top 25%: $563,800
Top 10%: $1,187,600
Age: 60-69
Median Net Worth: $209,200
Top 25%: $647,200
Top 10%: $1,429,500

Free Money Finance, warns you about how you might read and interpret these numbers:

If you're above these levels for your age, it doesn't mean you're doing well. Just because you're 65 and have a net worth of $300,000 (almost 50% higher than the median) doesn't mean you're in good financial shape. In fact, it's more of a reflection on how little everyone else has saved

Well, I feel ok about where I am. There's always something comforting about knowing that you're doing better than 50% or more of the rest of the folks out there. but, as Free Money Finance warns, don't mistake this for being ahead of the game. Get to work and build some wealth!

Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit!

That's right, credit can be just as valuable a tool as cash, when it comes to keeping an emergency fund. The next time you're thinking seriously about your financial house, take some time and think of the scenarios and options discussed here as possible tools to help you achieve your goals. Hopefully you'll think about having a Credit Emergency Fund from now on.

What are the benefits of pursuing an all Credit Emergency Fund? How about:

• Being able to max out your yearly 401K contributions
• Maxing out your company ESPP program for huge returns and free money!
• Getting immediate huge high-interest rate returns by paying off your high-interest credit cards
• Investing in stocks, bonds and mutual funds that return a higher rate of return than emergency fund savings accounts for your retirement
• Investing in real estate and business ventures

I'd like you to think about the possibility of having a credit-only emergency fund. Yea, I know, sounds scary ... just think about it. Grab a cup of coffee and just think about the info in this post. I'm sure that if you don't decide to get rid of your cash emergency fund, you'll at least think about it a little differently
;-).

First on the list is outstanding credit card debt. Do you have a sizeable amount of high-interest credit card debt? If you can answer yes to this, then here's reason number one to get rid of your emergency fund. Put it to work! That's right you can be a financial Warren Buffet and make 13%, 15%, possibly even 25%+ this year on your money. You must be absolutely positively sure that you are on track with your credit card spending habits before trying this method. Because if it was your out of control spending habits that got you this large credit card debt, then paying it off without fixing your spending habits isn't going to help. You'll simply end up with a Credit Emergency Fund of credit cards that are just charged back up with bad spending habits. That's a no no!

You may have been diligently building an emergency fund for a rainy day. That fund has been sitting there earning 3%, 4%, maybe 5%+ if you've jumped into some of the great online savings accounts out there. Here's a chance to get a guaranteed high-interest return on that money. Knock out all that pulse pounding high-interest credit card debt. Don't cancel any credit cards. If you still have outstanding debt after this move, then continue to work to reduce it. A great post on pfadvice.com puts credit card debt vs. emergency funds into perspective with this piece of advice:

...While this may give you some peace of mind, it’s a false peace of mind - you will never really have a true emergency fund until all your credit card debt is paid off…it’s as simple as that.

Second in the lineup, your HELOC. Think about using your HELOC as an emergency Fund. This is an excellent source of cheap money. Dr. Don, at Bankrate.com says to make sure of these points:

If you decide to take this route, it's important to have the credit line in place before you need it.

If the HELOC comes with a credit card, you want to avoid the temptation to use the credit card for nonemergency purchases. ... Activate the card but put it somewhere safe and out of reach, like in your safe-deposit box.

If you plan to use the HELOC for any other reason, make sure you get a large enough line to cover both needs. If you're planning to use the HELOC to finance an automobile, for example, you'd want to still have enough room on your credit line to handle a short-term financial emergency.

This is an excellent option, if you already have a HELOC open and available credit line to cover as an emergency fund. Most HELOCS with credit cards offer the same interest rate for cash withdrawals from ATMs, so this is just as convenient if you need actual cash. You can get it at the same low rate as the HELOC money.

Third in the lineup is Credit Cards. But, this time I'm talking about credit union credit cards. As I've been building up my personal Credit Emergency Fund of credit cards, I've noticed a couple of really wonderful things about credit union credit cards:

• They often are easier to get approved than normal credit cards
• They often give higher credit limits than normal credit cards
• They often give much lower interest rates than normal credit cards
• They often give you the same low interest rate for cash advances at ATMs as they do for regular purchases!
• They are now easier than ever to qualify for membership
• Once you are part of that credit union, They often have offerings for great rates on loans (car, home, equity, etc.)

I love the fact that I can get cheap money from my HELOC checks and credit card. But, second in line to that cheap money is the cheap money I can get from credit union credit cards from any ATM. You may have been bitten by huge minimum fees and even larger interest rates on cash advances from ATMs on regular credit cards. Just not the case with most credit union cards (check your membership info for details). So, in emergencies, these are second in line after my HELOC line of credit!

You can find out about credit unions in your area with one of these sites: http://www.joinacu.org/ or http://www.ncua.gov/indexdata.html . Now days you can generally join any credit union in your state, as most have the minimum requirement of being a resident of the state that they operate in.

Fourth in the Lineup are your Credit Cards, again. This time regular non-credit-union credit cards. Obviously HELOC credit cards and checks are probably going to be your cheapest source of money. They should therefore be your first tier in your new Credit Emergency Fund. In her MSN Money Article: $0 Emergency Fund, Liz Pulliam Weston, mentions another interesting fact about regular credit card usage for emergency funds that I didn't think about:

...And credit cards have a feature that home equity lines lack: If you wind up filing for bankruptcy, balances on unsecured debts like credit cards may be erased, while secured debts like mortgages and HELOCs can't be discharged.

Hopefully no one will have to use that feature, but it's nice to know there's some advantage to using credit card debt versus your HELOC credit.

Now after all of that, I hope you see the many advantages of building your Credit Emergency Fund and put your old cash emergency fund to work making some more cash! If you ever feel the need to hang on to big wads of emergency cash, then you have cheap cash avail to you from your HELOC credit cards or credit union credit cards at really cheap rates. You'll never have to worry about going into one of those loan offices that charge you 99.25% on your money for a short term cash loan (seriously, they're charging consumers that rate)!

Is There a Silver Lining in the Mortgage Meltdown?

If you're investing for your retirement and you have a decade or more to prepare, then you shouldn't sweat the meltdown. If you have good credit and an adjustable rate mortgage coming due soon, then you shouldn't sweat the meltdown. If you've been taking steps to get your financial house in order, then you shouldn't sweat the meltdown.

At Blogging Stocks Tom Taulli recently interviewed Ken Little, author of The Pocket Idiots Guide to Investing in Bonds. Ken shared his perspective on the recent market meltdown and had this to say:

If you read some of the reports about the recent swings in the Dow, you would think this had never happened before, when in fact it happens all the time. The stock market goes up and it goes down. The smart strategy for most individual investors is to begin an investment plan of dollar cost averaging and stick with it regardless of what the market does.

If you're already doing some smart retirement planning by investing on a regular basis, then you're taking advantage of the power of dollar cost averaging. This is a powerful tool to smooth out the hairpin turns of the investing road. MSN Money has a great little article to illustrate the power of dollar cost averaging to sock away a million bucks for your retirement. The author walks through this example and all the powerful ingredients that allow it to happen:

Here's how it works: Say you start with nothing, invest $500 (of your income) a month (a healthy discipline), and let your money ride (over time) in diversified investments. Long term, the stock market returns at least 10% annually. Assuming a 10% return, you'd have $102,000 after 10 years, $380,000 after 20 years, and $1.1 million in 30 years.

Take a look at these 5 steps to preparing for an early retirement. If you're already on the right track, that's great, keep it up and rest assured that regularly scheduled investing is going to payoff in this turbulent market that's brewing.

If you haven't gotten your retirement savings started yet, then start now! You'll have a couple of powerful advantages by starting now. The biggest advantage is: those who make a commitment to start saving become wealthy (Doesn't matter what your circumstances are), that's powerful! The other big advantage is dollar cost averaging and the buying power you'll have as the market makes corrections.

If you're having some difficulties with credit, you might find yourselves in the subprime arena, and affected by this situation. A great source of information on credit issues, mortgages, and money management is creditboards.com. Just be prepared to spend the weekend reading through the credit forum discussion boards and you'll be on your way to cleaning up and boosting your credit picture.

Great Finance Blog Posts - I've Enjoyed This Week: Great Rates in MA, What You're Worth Crystal Ball, Harvest the Equity in Your Home!, Strange Charges On My Statements?

Great Rates in MA
Bank Deals is quickly becoming a daily read for me.  I'm enjoying stopping by and learning about the latest rate comparisons and great rate deals.  The Banking Guy posted on what I thought was an incredible deal and made me want to find a penpal in MA: 6.25% Reward Checking Account at a Massachusetts Bank (North Middlesex Savings).  Not to worry, Banking Guy has categorized lists to look for bank deals in your state, not to mention the google search for your state :-).

What Are You Worth? - Crystal Ball
At Money and Such, they have a great post: Your Career Crystal Ball.  Where Shadox talks about the cool features of payscale.com.  A definite recommended read.  I've used payscale in the past when it's review time to get an idea of where you should be, it's a great tool to have in your arsenal!

Last Change Millionaire
Tricia from Blogging Away Debt, had a book giveaway for The Last Chance Millionaire by Douglass R. Andrew.  As you'll come to learn, I'm a big believer in getting your equity out of your house and putting it to work.  It sounds like Douglass is too.  I'll probably be checking this book out the next time I'm at the bookstore.  Read Tricia's post and you'll see an interesting visual aid that Douglass describes to drive this point home.

Unknown Charges in Your Statement, What To Do?
Patrick at Cash Money Life had a post that caught my eye immediately as I saw the title: What To Do When You Have an Unknown Charge in Your Statement.  He also had a link to another of his posts about a scam that folks are randomly choosing checking account numbers to send through ACH transactions (this is a must read scam to be aware of).  Good info, and I hope my strange transactions turn out to be as benign as Patrick's were :-).