Carnivals - week of 8-27-07

Teaspoon Finance posts appeared this week in the following Carnivals:

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,, 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 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 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: or . 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 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  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 :-).

Automatic Investing is Hot!

Automatic Investing ... Set it and Forget it Savings!  Sounds like an infomercial, right?  It's definitely an attractive concept.  You've probably been seeing more and more of this concept popping up all around you.  The latest hot book is David Bach's Automatic Millionaire.  The new trend in 401Ks and mutual funds is Lifestyle Funds.

It's hypnotic and alluring to think that you can build an automatic personal investment system to achieve your goals.  It seems like a silver bullet and in many aspects it is.  Once you've made the commitment to save, then actually follow through to save regularly, you just need the final ingredient to determine what to invest in.  It's simply not enough to build your retirement nest egg in a savings account.  But, it gets complicated when you have to think about all the investment options out there and which to use. 

I've mentioned before a great study by 2 professors from Harvard and Dartmouth that points out the single most important ingredient to building wealth is to follow through with your personal commitment to save.  You can follow Automatic Millionaire, The Richest Man in Babylon, or any other investment advice.  The Richest Man in Babylon has been around for decades and has got to be the original automatic investment advocate.  You can kick off your automatic investing by automatic draws from your paycheck to savings, 401K, whatever vehicle you have available.

The next step is selecting options of investing the savings you're building.  Here's where things like Lifestyle Funds are a great new trend entering 401K funds and mutual fund arena.  The goal of these funds is to handle all the asset allocations for you in one fund.  You select the fund closest to your retirement date like Lifestyle 2020, Lifestyle 2040, etc.  The fund automatically handles the asset allocation as you get closer to your retirement date.  Being more aggressive when the date is further away and more conservative as your retirement date approaches.  Liz Pulliam Weston, in her MSN Money article, explains it this way:

This is Retirement Investing 101: You want a bigger chunk of your money in bonds and cash as you approach your last day of work, since you'll have less opportunity to make up any losses.

I'm a big believer and follower of the entire automatic investing approach.  I'll be looking more into these lifestyle funds as my retirement date approaches.  For now I'm following an aggressive stocks only approach and I do follow an automatic approach.

I hope to blog more about it in the future.  It follows an automatic strategy from the Armchair Millionaire.  I have my 401k investments go to 1/3 S&P 500, 1/3 Russell 2000, and 1/3 to International (EAFE) fund.  You can read more about this allocation mix and why it works so well here: Armchair Investing Strategy, from the book by Lewis Schiff Armchair Millionaire.  The key to it working so well is is the principle of non-correlating markets, which simply means that while large caps might do well, small caps might not.  Also, while US Markets may do well (S&P 500 & Russell 2000), international markets (EAFE Fund) may not.

Mortgage Meltdown Questions On Your Mind? Got Mortgage?

Unless you've been on a vacation island for the last month, you've noticed something brewing with the mortgage industry. A article hears these questions asked recently by consumers, based on industry professional interviews:

Will I still be able to get a mortgage?

If you have an adjustable rate mortgage due to adjust in the next few months, this is a big worry. The consensus is: if you have decent credit, then you shouldn't be shut out of a mortgage.

The current problems appear to be with 'no documentation' and jumbo loans (over $417,000).

Another question on the public's mind:

Can I still get a no-down payment loan?

Short answer: yes, if you have good credit. Alex Stenbeck of the Behind the Mortgage blog, says that the problem is with subprime loans. He explains that this is where most folks get confused:

People tend to incorrectly group no-down payment mortgages together with subprime loans, Stenback said. But there are still programs that can get prime borrowers into mortgages with little or no money down to begin with...

Taking a look at Stenbecks blog, he quotes an article in the New York Times that has a great graphic to walk you through the mortgage mayhem we're currently experiencing. Stenbeck calls it: The Rube Goldberg Machine That is Our Mortgage Finance System. The NYT describes the mortgage perfect storm like this:

An unfortunate combination: more loans in default (many borrowers were never in a position to pay them off), risky bets worth billions made by some investors (deals now gone sour), and the reversal of the housing boom.

OK, repeat that in one breath and you deserve a cookie this afternoon! It really helps to take a look at the graphics to get clarify all the factors in play here.

I'm feeling adventurous, so I'll try and boil down their very colorful graphic in to less than 1000 words:

  1. The 1990's the mortgage industry relaxed their qualification methods, reduced down payment requirements (to 0 down in many cases), pushed lower rate introductory ARMs and this got many people out of their comfort loans into loans they probably should have been getting into
  2. The mortgage shellgame - loans are no longer being held by the original lender as they once were. Now, only about 1 in 5 are actually retained by original lender. Investment banks are buying up the mortgages and turning them into mortgage-backed-securities
  3. Feeding frenzy of mortgage investors - much of the cream of the crop is sold as AAA rates bonds and backed by the principal and interest payments of the underlying mortgages. The riskier BBB bonds backed by riskier mortgages are being reintegrated into higher rated securities CDO's (collaterized debt obligation) and re-rated as AAA (even though they contain large ratios of the riskier mortgage holdings).
  4. Several hedge funds heavily invested in these risky securities are becoming in jeopardy.

My head is spinning, but I do feel like I understand the mortgage meltdown a little better now.

PFSN - Not a contagious disease, but possibly a hot new trend in personal finance

PFSN, Nothing to check yourself for. Just a little abbreviation I made up for a possible new personal finance trend prediced to pop up. Saw a recent article on PFSNs (Personal Finance Social Networks) on Google news recently. The article from the Intl Herald Tribune talks about how online social networking is meeting personal finance. If the experts are right, then there could be 2 million of these savvy personal finance social network users by the end of 2008.

The author mentions 2 sites in particular and It's an interesting concept that I look forward to learning more about over the coming months. It's like an online version of Microsoft Money (or Quicken) meets Facebook (or Weight Watchers). Jason Knight, chief executive of says:

"Social finance is a way for consumers to find out if there's real value where they're spending money."

The sites allow you to link to all of your online bank and credit card accounts. It can pool all this information and perform some data correlation and categorization based on what other users input already. This allows the sites to offer category suggestions and tips based on your specific expenses and entries in your financial data.

An online version of Money is a great idea, once people get past the privacy and security issues. Combine that with the encouraging support aspect of networking and sharing questions and advice with like minded members of your community could be a winner.

Etan Horowitz of The Orlando Sentinel wrote an article sharing his experience testing out three of these sites,, and Online Finance Help. He was impressed with the capabilities of the sites. He was especially impressed with

The best of the bunch is, which uses your spending history and favorite merchants to generate money-saving tips from other users or "Wesabeans" who have similar habits. If you spend your money on groceries or magazines, you'll see tips about saving money on these items. One user filled me in about $5 movies at AMC theaters before noon on weekends and holidays.

It sounds like there's a bit of upfront work, as is usual in any kind of automation. But it get's a little easier, according to Etan:

Uploading and categorizing expenses takes a lot of time at first, so you may get frustrated. But if you have the patience and want more control over your finances, give one of these sites a try. Both Buxfer and Wesabe will start to automatically categorize your repeat expenses after you do it once, so that makes things easier.

The original Herald article mentions other flavors of social finance that you may already be familiar with. Finance blogs like this one where we can interact with folks of like-minded finance goal interests to share posts and comments about topics of interest. Also social finance sites like,, and where networks of folks can join to lend and borrow money from fellow members.

Great Finance Blog Post - Ask the Readers: Is It Better to Invest or to Prepay a Mortgage?

Another favorite finance blog post I'd like to highlight to share some great blogs out there that I enjoy regularly. has this great post: Ask the Readers: Is It Better to Invest or to Prepay a Mortgage? JD at Get Rich Slowly has blogged this topic before. He revisited this topic again to answer an email question. I can see why, this is definitely a tough topic to discuss with folks, because it goes against generational pressures, opinions and our instinctual basic needs in life. JD points out how difficult a question and varying the answers of those that discuss it are:

This question has stumped smart people for years. Is it better to invest or to prepay a mortgage? Neither answer is wrong — there are advantages and disadvantages to both. But is one choice less wrong than the other? When I covered this subject a year ago, I shared advice from several personal finance books.

Like everyone else, I've had many varying opinions about this rolling through my head. The safety side of my brain wants to say: "Let's pay off this mortgage, so that we have a sense of security. No mater what, we'll always have a place to live in our retirement". Our parents and their parents will echo this sentiment.

The financial guru in my head says: "Hey, you know that you're only making 5.25% on that principal you pay down, right? No, wait with the tax benefit of interest you can write off, that interest rate is a good amount under 4%! So, how the heck do you think you're going to build wealth like that Mr. Buffet?" Well, that just might make be start wearing a WWWBD bracelet, so I remember to make smart money decisions :-).

This really only hits our Survival and Safety levels of Maslow's Pyramid. Those are the 2 most primitive needs. Ok, I'm an animal, you can't let me fight this fight. I love that JD references Ric Edelman's book and view on this topic:

Ric Edleman (Ordinary People, Extraordinary Wealth): Never own your home outright. Instead, get a big 30-year mortgage and never pay it off — regardless of your age and income. “Every time you send an extra $100 to your mortgage company, you deny yourself the opportunity to invest that $100 somewhere else.”

I'm totally sold on Ric's viewpoint here. I mean he hits you over the head with TEN really good reasons why in his article 10 Great Reasons to Carry a Big, Long Mortgage:

Reason #1: Your mortgage doesn’t affect your home’s value.
Reason #2: You’re going to build equity anyway.
Reason #3: A mortgage is cheap money.
Reason #4: Mortgage interest is tax-deductible.
Reason #5: Mortgage interest is tax-favorable.
Reason #6: Mortgage payments get easier over time.
Reason #7: Mortgages let you sell without selling.
Reason #8: Large mortgages let you invest more money more quickly.
Reason #9: Long-term mortgages let you create more wealth.
Reason #10: Mortgages give you greater liquidity and greater flexibility.

Stop by Ric's article and read all the gory details that he bashes us over the head with to beat the sense into us. So, what are you waiting for? I'm sure Ric would say something like: Run out there and get yourself a big refi and harvest all that equity out of your house, then put it to work building some big time wealth!

I've always loved Ric's radio show and books, I hope you enjoy all the educational resources on his site:

Great Finance Blog Post - How You Can Become Wealthy

Since I love reading finance blogs, I wanted to blog on some of my favorite posts that I find at each of these blogs I like to visit. I hope to keep this up as a series and point you in the direction of some great finance blogs out there that I enjoy regularly. had this great post that was short, sweet and oh so true: How You Can Become Wealthy. The post discusses a great article on moneycentral. The article covered some findings by 2 professors from Dartmouth and Harvard, that did a study for the National Bureau of Economic Research, some years ago. The bottom line was this:

...the vast majority of the differences in wealth had nothing to do with income, chance events or investment choices.

So, there's scientific study that shows that the first step to saving is 'saving'!

What did explain most of the differences in wealth? Venti and Wise concluded it was this: How much the families chose to save. Those who made it a priority to save built wealth, regardless of their income level, individual circumstances or choice of investments.

I'm sure we each have experienced this. There's that one moment or period in our lives when we realize that we need to get our butts into gear and start saving.

It's funny, when I talk to friends/associates and the topic gets to money and I occasionally hear something like: "I haven't really been able to afford to kick off my 401K yet". I try to slowly encourage them to get into the habit. Now, I'm not talking at that moment, because I know it just isn't going to be taken well or digested. But, over lunches and through the course of time, I'll generally get back to the topic and offer a little encouragement. Maybe, I'm a pest, but I wish someone was a pest with me and got me on the right track sooner. I would have loved to start saving in my teens, wow would I be set for retirement already! I was glad though that I did run into someone that got me pointed in the right direction.

One final thought. Recently I bumped my fun-money savings ratio, just out of sheer annoyance and maybe some back-strain. I have this 5 gallon jar that I have saved coins in for a couple years. Just figured that I'd never spend coins and 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 :-). 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 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. 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 :-(.

The Richest Man in Babylon - Great Book! Even when I paid $250 for it :-)

Yea, that's right I paid $250.00 for The Richest Man in Babylon! I'm sure many of you have heard of this book before. The book's cover says "The success secrets of the ancients - the most inspiring book on wealth ever written". I believe this to be true. It's definitely the book that turned my financial compass north.

OK, back to how I paid $250.00 for this book :- ). This was back in the 90's. This was a time in my life where I was young and full of eagerness to explore all the wonderful ways to make money. You might say I had get rich quick fever! It was during my second venture into MLM (Multi Level Marketing). I'm sure I'll blog on the wisdom I've gained from MLM at some point, but for now let me say this about my opinion of MLM ... Although I was somewhat successful with 2 different MLM ventures, I felt I lost in the end by straining friendships in the process.

During this time my good friend (I'll call him Calvin) and I met a gentleman (I'll call him Jay). Jay was bringing us under his wing and teaching us more about MLM at first and about finances in the end. There's one great analogy he gave me that stuck and probably the single most reason I realized that MLM had to be in my history and not my future.

What Jay said was something like this:

... When you think about what MLM really is you can break it down into this: A group of individuals working to sell a product/service; A hierarchy of individuals managing the customer facing individuals; A group of individuals that started or fund the entire enterprise and make a small percentage of the overall profits. Now that's great if you're one of the founders or individuals that got in early in the game, you end up making lots of money. Otherwise you make less and less as it gets down to that customer facing final individual who's trying to build their own network. Wouldn't it be great to somehow pay one of the founders something to share in their profits?

Well, there's actually a really regulated system that exists today where you can do exactly this: The Stock Market! When you think of public companies, they have a very similar structure as MLMs, except all of the employees (sales and otherwise) are capped on what they earn. That means more profits rolling up to the top founders and managers and SHAREHOLDERS!

I'm sure I'll blog more on this topic later. Bottom line, investing in stocks (whether individual or through mutual funds) is one of the best way to have the efforts of many working for you!

Calvin and I continued to visit Jay and his family and learn more and more about finance and investing. This was the early days of the web and there weren't a lot of investment sites you could learn or research on. He had a couple of different online investment accounts. He'd try and show us how he made money day trading. He tried to show us about options. For our level of learning options was a far fancier endeavor than we wanted to get involved with. We could understand the leverage advantages, but were leery of the ultimate possibility of losing all of that options investment if it expires on you.

To shorten a long story a bit, Jay showed Calvin and I how he was making money day trading and his neighbors would drop over periodically asking advice and sometimes investing with him and letting Jay run their trades and then give them their profits. Ultimately Jay asked us if we wanted to let him invest any money for us. Calvin and I discussed this on our own and came to the conclusion that we'd invest only a small amount as we were a bit skeptical of the whole situation, but were grateful for all the time Jay spent teaching us about investing. We each gave Jay $250.00. That day we did that, Jay gave us each a copy of the book The Richest Man in Babylon and said we should read this because it was very insightful and had many lessons on building wealth.

So, exactly what happened to our $250.00? Not much, we continued to learn about investing on our own. We read The Richest Man in Babylon and both agreed that it was an amazing revelation and a milestone in each of our personal finance educations. In the end we stopped talking to Jay as it seemed that he never had any new news on our investments and finally after confronting him he said that it looks like he made a mistake and allowed our options to expire without action. Calvin and I considered ourselves fortunate that we only gave Jay $250. To this day we laugh at how much we paid for our wonderful copies of The Richest Man in Babylon. We still think it was worth it :- ) !!!

I truly say that, from that point on I had a thirst for learning new things about finance and investing and each new spoonful of wisdom started with that great book.

FICO Roller Coaster - Part 1: FICO Freshen Up in 3 steps

In this series I'll do my best to touch on the following topics:

  • FICO Freshen Up - Quick actions to pump up your FICO in the next 30 to 90 days
  • FICO OCD - Ongoing credit monitoring of your files and scores
  • FICO Battle - Long term battle plan when your reports & scores are in some serious need of cleanup & boost

Part 1: FICO Freshen Up - Quick actions to pump up your FICO in the next 30 to 90 days

OK, in this series (in 3 not so short steps), I'll cover a great gameplan to hopefully make some substantial improvements to your FICO score in the next 30 to 90 days. I've gone through many different levels of understanding about FICO scores. From what the heck they are, what's good, what's bad, to learning some great methods for boosting and keeping mine in the healthy range and the oh so important difference between FAKO and FICO. A great site that I've learned a bunch from in the last year is This site has great set of discussion forums on all different aspects of personal finance. They're main board is probably the Credit Forum. Tons of knowledgeable people pitch in to help their fellow posters deal with the daunting hardships of credit card debt, personal finance tips and tricks, mortgage finance hunting, money management, and more, much more. I highly recommend this site if you want to dive in for a week or more of reading posts and FAQs on how to improve your credit score picture. What I'm touching on here is only the tip of the iceberg. There's so much more to learn there.

Before I got educated at this site, I was playing the 0% balance transfer shell game to reduce the interest hit of my outstanding balances. While this makes good financial sense, if done without attention to FICO, it can wreak short term havoc on your FICO score. Before I did learn about FICO scores and in general how to monitor them and was very fuzzy on how to really make them move. I figured if I kept paying off the balances, that the scores had to go up and they did.

Short and sweet steps

  1. FICO Checkup - Pull your reports and scores and see where you stand. Use for FICO scores, rather than FAKO's.
  2. FICO Boost & Payplan - Pay balances and perform balance transfers (using existing cards only ... no new card requests for balance transfers) to achieve an even utilization ratio.
  3. FICO Monitoring - Monitor your FICO and Report progress as you paydown until you're ready for your mortgage/loan

Details, details, details to the steps

  1. FICO Checkup - Pull your reports and scores and see where you stand. Use for FICO scores, rather than FAKO's.

    What is a good FICO? What's the difference between FICO and FAKO? What's a FICO middle score?

    FICO scores range from 300 to 850. When lenders look at your scores they generally are looking at your middle FICO score. This is the the middle score of your 3 available FICO scores. There are 3 credit bureau organizations that mortgage brokers and most other creditors get your FICO scores from. These are: Equifax, Experian, and Transunion. So, if you had scores of 660, 680 and 700 the score that your Mortgage broker woudl be quoting your rates at would be the middle score of 680. It's funny, but your score can vary in range from any of these three credit bureaus.

    How FICO score affects mortgage rates

    760 to 850 tier 5.78%

    700-759 tier 6.002%

    660-699 tier 6.286%

    620-659 tier 7.096%

    580-619 tier 8.583%

    500-579 tier 9.494%
    (as of March 2007 for 30 Year fixed $300,000 mortgage)

    (from article:
    How credit scores affect mortgage rates)

    A good FICO is basically a FICO that allows you to get a prime rate mortgage. Scores below 660 start to penalize you on getting the conventional prime rate mortgage rates. The general consensus is that a 660 and above gets you rates starting in the prime rate range. As your middle scores move up from 660+, you are on different tiers of improving mortgage rates. With the best generally considered from 760+. So, once you've reached a middle score of 760, it's great to keep improving so that future hits to your FICO won't have a great impact. But, you might not necessarily see any rate improvements.

    So, what the heck is a FAKO? This one threw me for a loop for a couple years. For the last 5 years or so, I thought I had a handle on improving my scores. I could never figure out how the heck the mortgage brokers got such different scores than the ones I was pulling to monitor my credit. I mean I was diligently pulling my credit reports and monitoring them and my scores from all 3 bureaus at Then when I'd apply for a car loan, mortgage, refi, investment property, etc. I'd confidently tell the broker that my middle score should be 670 (etc.). They'd say, well it looks like it's actually 675 or sometimes in the bad direction 665. I'd say, what are three scored you have for me and they'd say for example: 660, 675, 696. I'd say: well, I just pulled them yesterday and they are 670, 675, and 705. They'd say, those are consumer FICO's. We pull a different set of FICOs for banks.

    Geeze, I felt somewhat beaten down by the process. But, I was getting my scores in the general upward velocity and vicinity that I wanted them to be. I just couldn't understand why my scores I'd pull and theirs were so different. Well, on I learned that if you want to monitor your scores and report, use many folks do that to great success. But, once a year/quarter/before refi/etc. pull your score from This is the consumer end of and they publish the real FICO scores that the banks get. The scores that gives you are FAKO scores, they have their own algorithms to give approx scores for the 3 credit bureaus, but they aren't the exact algorithms that uses and that all banks actually get. So, there you have it FAKOs are great for monitoring general trend and vicinity of your actions on your scores, but when you really want to know what scores your creditors/brokers will be pulling you should pull it from .

    Now, I'm sure I heard a couple of people pipe up and say: why even pull reports and scores? Just use
    all the time. Well, it comes down to money my friends ... cold hard cash. and there are others that you can learn about on charges a pretty nominal fee for the year to allow you to pull your updated credit file and scores on a daily basis (yep, updates daily) as well as daily alerts sent to your email when things on your report changes (great for monitoring for Identity Theft). Whereas pulling from costs about $45.00 ($40.00 if you can find promo coupons and there generally are some posted on

    Now that the basics are out of the way, what was step one again? Oh yea, let's pull our FICO and FAKO's and see where we are. You have a couple different options here. First, if you've just recently applied for a Mortgage, Refi, Car Loan, etc. where they pulled your credit report and scores from all 3 bureaus, then ask them to please tell you what your scores are from each of the bureaus and note these. This is basically free if you do it this way :-). Also, ask them if they would please send you your three credit reports (if you can't get these, that's ok, we'll want to pull them anyways).

    So, if you didn't get your scores or reports the freebie way, there are still some economical avenues. You can go online and get your credit reports pulled down for free within 60 days of being declined for credit. Just follow the online links in this post:
    Links to the Free Online CRA Credit Reports For adverse action or declines (i.e. also free if you are unemployed, on welfare, or have any reason to believe your reports are wrong due to fraud).

    You are entitled to pull your Credit Report from all 3 bureaus for free once a year. You can choose to pull a report from one at a time every 4 months (just a suggestion) for free to keep you covered for the entire year when you're monitoring or you can choose to pull them all at the same time from
  2. FICO Boost & Payplan - Pay balances and perform balance transfers (using existing cards only ... no new card requests for balance transfers) to achieve an even utilization ratio

    OK, you got your reports and you know where your starting scores are. 30% of your credit score is made up of the amount you owe. In particular your overall and individual credit line utilization rates figure big time into your credit score. So, if you lower your utilization rate, you increase your fico scores. Payoff your debts and your scores increase. How to calculate your utilization rate? It's the ratio of your debt to credit limit. Or: Utilization = Debt/Available Credit Limit. Example: Platinum Visa with $10,000 limit and $4,000 balance; Utilization = $4,000/$10,000 = .40 (or 40%). The rule of thumb is that you want to have none of your cards above a 50% utilization. This is a signal to your creditors that you are maxing out a credit line and can't manage your available credit limits.

    This one killed me, remember when I said I'd balance transfer to my 0% card offers. Well that was giving me a 80-90% utilization on individual cards (but not changing my overall utilization). The result is my FICO score would tank and I couldn't figure out why. Do a search on 'Utilization' at for lots more examples and explanations. Suffice it to say that one of the most powerful methods of increasing your FICO scores quickly is to equalize your credit card utilization ratios.

    Your action plan is to build up a spreadsheet (paper or electronic) and calculate all of your existing utilization ratios for all your open credit card accounts. Apply your monthly payments to reduce highest utilization ratios first. Apply minimum payments to all others.

    You can also utilize existing balance transfer offers you have (on your existing cards only, don't open new accounts). Use these to move the balances around to equalize the utilization ratios. Example:


    Card Balance Credit Limit Utilization

    Card1 12000 15000 80%

    Card2 0 (BT Avail) 5000 0%

    Card3 5000 10000 50%

    Card4 0 (BT Avail) 10000 0%

    Card5 10000 12000 83%

    after 1 month (with avail balance transfers + $1000 monthly payment)...

    Card Balance Credit Limit Utilization Paid/BT

    Card1 7500 15000 50% 4000BT + $500

    Card2 2500 (BT) 5000 50% -2500 BT

    Card3 5000 10000 50% Min Pymt

    Card4 5000 (BT) 10000 50% 5000 BT

    Card5 6000 12000 50% 3500BT + $500

    after 2 months (with only $1000 monthly payment avail)

    Card Balance Credit Limit Utilization Paid

    Card1 7225 15000 48.17% 275

    Card2 2400 5000 48% 100

    Card3 4800 10000 48% 200

    Card4 4800 10000 48% 200

    Card5 5775 12000 48.13% 225

    Note: The above method is not the most cost effective way to deal with it. If you have no need to have a great FICO score right away. Then play the 0% balance transfer game any way you want to reduce interest rates and attack attack attack your credit card balances with all your avaialble cash payments. Attack the balances with highest interest rates first for the best savings. Once they're all paid off you'll have stellar FICO Scores as your utilization will be close to 0%.

    Caution: No matter what you do, do not close accounts as you do this. You could seriously tank your FICO scores! Read up on about closing accounts. Take a look back at the charts at for what makes up your scores (remember, these are the folks that created the algorithm for all our scoring, so they know). Payment History makes up 35% and Length of Credit History makes up another 15% of your FICO Score. So, closing an account you aren't going to use anymore could hurt you (especially if it's an old account). As long as you're not paying a fee for it throw it in a sockdrawer or in a baggie of water and throw it in the freezer. It's not going to be used that way and is always there if you need it AND it won't kill your FICO Score.

  3. FICO Monitoring - Monitor your FICO and Report progress as you paydown until you're ready for your mortgage/loan

    Go online to or another monitoring service that you're familiar with and monitor your score and credit reports. I like to use and I have the plan to pull unlimited scores and reports daily. It's like $10 or $14/month. You might check with your credit union, employer, etc. to see if they have any recommended credit monitoring options.

    What I do is pull my score weekly or daily if I'm looking for score changes and report updates. I also save my reports and scores daily to hard drive (in html format). This allows me to look from one pull to the next to determine what had an effect on moving the scores. Remember, these are FAKO scores, but the general movement and trend is what you're looking for. You should see your scores going up as your new balances are posted. You can check on your report to see if it reflects the new balances for your most recent payments. You'll notice that as soon as a new balance hits, you'll see an upward movement in your score for that day :-). As you attack those balances and drive that Utlization ration to under 20% you'll notice a huge spike in your scores over that time.

    Once you've done about all you can before you'd like to engage in a mortgage broker, etc. Then pull your scores and you'll know exactly where you stand with what your rates can buy you.

    How FICO score affects mortgage rates
    (as of March 2007 for 30 Year fixed $300,000 mortgage)

    760 to 850 tier 5.78%

    700-759 tier 6.002%

    660-699 tier 6.286%

    620-659 tier 7.096%

    580-619 tier 8.583%

    500-579 tier 9.494%

    (from article: How credit scores affect mortgage rates)

More to come in the upcoming parts to this series. We'll dive into how you can triage and attack the information in your credit report to take away bad references, derogatories, etc. For more information in the meantime on this topic, check out a great primer on credit building by Psychdoc at creditboards: PsychDoc's Credit Repair School