www.TeaspoonFinance.com - Financial wisdom, one teaspoon at a time...

Don’t Put Your Money In Your Mattress! – Or, reduce your information footprint, so that bad guys are less likely to rob your piggy bank.

2010-04-05T21:47:00.001-07:00

For years we’ve all been hearing news stories and commercials that try and drive home the importance of identity protection. My favorite commercials are the Citibank commercials with someone speaking in a voice that is all too obvious it is not theirs. You can see a great compilation here at Fight Identity Theft. I just love this one (with two little old ladies on the couch – with blazing saddles cowboy voices coming out of their cute teetotal ling little mouths):

Wooohoooo Weeewww, Spending Limits, who cares? Not Use, cause those aren’t our credit cards ….

With all the new technology it’s becoming almost second nature to put yourself on digital display. Facebook, Twitter, and many more social media sites and apps make it far to easy for folks to put themselves on almost automatic update to tell the world what they are doing ever second of their day.

To show just how potentially dangerous this practice has become the site PleaseRobMe.com has datamine’d twitter accounts to show that real people are giving away their location and essentially saying:

Hey I’m not at home right now, so if you want, this is a perfect time to rob me.

They also show how easily you give away your home location too.

For anyone that has comcast cable at home (you can find it in the on demand movies section), you should check out a great new documentary video called Erasing David. If you don’t have comcast, no worries. Here’s a list of locations from Erasing David's website that you can download (like Amazon, etc.): http://erasingdavid.com/category/categories/watch-the-film/

Erasing David is an enlightening movie to show how much of a digital footprint we leave all over the place and how others can use it against us. In their own words:

Erasing David is a documentary about privacy, surveillance and the database state.

David Bond lives in one of the most intrusive surveillance states in the world. He decides to find out how much private companies and the government know about him by putting himself under surveillance and attempting to disappear a decision that changes his life forever. Leaving his pregnant wife and young child behind, he is tracked across the database state on a chilling journey that forces him to contemplate the meaning of privacy and the loss of it.

That’s right Bond, but not James Bond :- )…

For those that watch Celebrity Apprentice, you’ll notice that in the last few weeks they had to do a challenge to create an advertorial for Lifelock. This is the commercial membership program that protects your identity. After a little research and a bit of ringing my memory I remember Clark Howard (of CNN shows of same name), mentioned a DIY way of setting up for yourself what basically amounts to the cornerstone of Lifelock service. Whch is to freeze and thaw your credit accounts.

This freezing of your credit accounts makes it impossible for anyone to open a credit account or otherwise run a credit report on you. You must be careful and follow all instructions, becuase this also means that you yourself are restricted, unless you ‘thaw’ the credit report for when you are actually on the credit/new account hunt. Clark Howard put together this great tutorial for how you can do it all online at each of the credit bureaus for a most nominal fee. His instructions are at Clarks Credit Freeze and Thaw Guide. Here’s clark’s introduction before all the specific instructions:

Credit freezes are one of the most effective tools against economic ID theft available to consumers. They allow you to seal your credit reports and use a personal identification number (PIN) that only you know and can use to temporarily "thaw" your credit so that legitimate applications for credit and services can be processed. That added layer of security means that thieves can't establish new credit in your name even if they are able to obtain your ID.

Freezes have been available for free to victims of ID theft for some years, but recently all three of the major credit bureaus adopted new rules allowing non-victims to have access to credit freezes as well for a small fee. In addition, most states and Puerto Rico have adopted laws establishing credit freezes for residents of their state.

The cost ranges from $3-$10 per person per bureau to freeze a credit report; a couple of states have higher fees. (For Georgia residents, the cost is $3 per freeze, free for those 65 and over and free for victims of ID Theft with a valid police report).
The cost to "thaw" your reports for one creditor -- or for a specific period of time -- range from being free to $10.

When shouldn't you freeze your credit?
If your credit reports are accessed often for work or because you create new accounts with various financial institutions on a regular basis, it is not suggested that you freeze your accounts. The costs to continually "thaw" your reports would tend to be excessive.

Afterwards you'll find directions and links to assist you in obtaining your credit freeze or thaw from each bureau. This is quite a savings as compared to Lifelock (who charges $110+ per year for similar service). The thing about lifelock is that you get a $1million insurance policy and other montioring assistance. But, until you can afford lifelock on a consistent basis or need it, freezing and thawing on your own should be a definite consideration.

Count the Dollars, Not the Pennies! = max out your 401K + reduce insurance bill …

2010-01-23T05:13:00.001-08:00

That's right I said it ... all you frugal folks, please don't faint ;- ).
I've been living this philosophy for many many years, perhaps a couple decades. It fits with my no budget philosophy. Now, I can't take credit for this phrase, it's the cornerstone to a 6-step strategy in a great book I picked up at Borders recently. The book is called All Your Worth by Elizabeth Warren and Amelia Warren Tyagi. It's an oldie (from 2005), but definitely a goody that you should take a look at.

For folks that consider themselves frugal or thrifty, this might sound like sacrilege to a frugal lifestyle. But, give it a minute to sink in and you'll realize that it really fits quite nicely with frugal living. This philosophy of counting the dollars and not the pennies, just simply means being frugal about all the big ticket items that you 'must have' and spend on reguarly (i.e. insurance, mortgage, rent, car, etc.). You see, you stand to save huge dollars by taking a bite out of your monthly expenses when you can take a bite out of these items.

I love chatting investing, personal finance, deals, frugality, etc. with friends. Many of them get a little preachy and naggy with me about spending here and spending there. My come back for decades has been something along the lines of "I focus on Saving Dollars, not Cents! ... So, tell me, Did you max out your 401K last year?". I then procede to tell them how they can be saving big money by investing a little more sensibly when they invest in stocks (maxing out their 401k, using stop-losses, knowing when they're going to sell a stock before they buy it, getting a mortgage to save on taxes, etc.). All these things are big big ticket items that can save all of us $thousands$ a year.

So, the next time your friend nags or preaches to you about why you don't use coupons or don't seem to be as frugal or penny-conscious as them ... ask them this simple question and if their answer is yes, then listen to them they've probably got the dollars and cents stuff already figured out :- ). My simple question back at them is always

Did you max out your 401K last year and this year?

If they answered no, then give them a little education that's going to save them thousands this year and next and then learn what you can from them about pinching-pennies :- )...

Retiring Abroad - Consider India and Kerala in Particular as a World Lesson In Economic Quality of Life

2008-12-20T07:18:00.001-08:00

From the last post on Retiring Abroad - Or, Maybe Sailing Around The World for Free! I've received some mail and recommendations to dive a little deeper into consideration of India as a retirement location abroad. There are quite a few resources and blogs dedicated to the subject. A great post to dig into was at Retire To India by Nigel with his post last year 10 Best Places to Retire in India. Nigel used the following guidelines in building his 10 best list:

Good location with interesting local activities and places to explore.
Good infrastructure, including medical facilities. A significant retiree population is a plus. This eliminates some of the more exotic locations.
Not excessively crowded. This rules out most of the bigger cities in India.
Safe, with a cosmopolitan outlook and open to outsiders. A sizable expatriate population is a plus.

In reviewing Nigel's list for myself I looked for one more guideline to be on the coast, because I love the water and I think others are of like mind. This puts Goa at the top of my list and Kerala, Mangalore, and Puducherry as honorable mentions.

The former Portuguese colony of Goa is known for a fine climate and a cosmopolitan culture. Renowned for its beaches, Goa is visited by hundreds of thousands of international and domestic tourists each year. Located on the west coast of India in the region known as the Konkan coast, Goa is home to a growing number of Europeans and Indian expats from abroad.

Looking at cost of living in Goa and you'll find that the dollar does indeed go a long way. Nomad4ever gives us this cost of living data and it is really helpful to see how far the dollar or euro will stretch. I only wish we had this similar data for the other 3 coastal cities of interest.:

exchange rates 1.12.08 Avg price in rupees in USD in EUR

Cigarettes (10 Local Brand) 24.00 0.48 0.38

Cigarettes (20 Imported, Marlboro) 80.00 1.61 1.27

Clothes - FlipFlops ('Bata' or non-branded) 120.00 2.42 1.91

Clothes - T-Shirt (non-branded) 130.00 2.62 2.07

Clothes - Sports Shoes (non-branded) 200.00 4.03 3.18

Clothes - Pair of Jeans (non-branded) 200.00 4.03 3.18

From wikipedia we can see the coastal location of Goa.

Located on the west coast of India in the region known as the Konkan, it is bounded by the state of Maharashtra to the north, and by Karnataka to the east and south, while the Arabian Sea forms its western coast.:

Finally I wanted to take a look at Kerala. From wikipedia we can review the coastal location and climate variations of Kerala.

Kerala is wedged between the Arabian Sea and the Western Ghats^[35]. Lying between north latitudes 8°18' and 12°48' and east longitudes 74°52' and 72°22',^[36] Kerala is well within the humid equatorial tropics. Kerala’s coast runs for some 580 km (360 miles), while the state itself varies between 35 and 120 km (22–75 miles) in width. Geographically, Kerala can be divided into three climatically distinct regions: the eastern highlands (rugged and cool mountainous terrain), the central midlands (rolling hills), and the western lowlands (coastal plains). Located at the extreme southern tip of the Indian subcontinent, Kerala lies near the centre of the Indian tectonic plate; as such, most of the state is subject to comparatively little seismic and volcanic activity.^[37] Pre-Cambrian and Pleistocene geological formations compose the bulk of Kerala’s terrain.

I found an interesting post Kerala: A Lesson In Light Living with a perspective on Kerala that goes beyond cost of living and dives more into quality of life.

In conventional economic terms, Kerala is one of the poorest places in the world. Annual per capita GNP in 1986 was $182 (that's less than 50 cents per day in total economic production for every person in the state), compared to $290 for the whole of India and a whopping $17,480 for the United States. If Kerala were a separate country, those figures would place it 9th on a list of the world's poorest nations.

Yet in terms of quality of life, Kerala is an astonishing success story. In contrast to the rest of India and most other low-income countries, people in Kerala enjoy education and health at levels close to those in the West.

Kerala is actually quite an economic enigma for those that study such things. A retired professor from California Polytechnic State University (San Luis Obispo), Will Alexander believed this so much that he setup up a series of Good Life Study Tours. These were designed to try and convey the economic riddle that is Kerala. Participants in the program live with a Family in Kerala for one month to try to better understand:

Kerala is a puzzle because the relatively high quality of life there simply doesn't fit with the tenets of economic science: "It's an absolute non sequitur that people could be happy and satisfied at consumption levels which are half that of Haiti."

Participation in a one month Good Life Study Tour sounds like an enlightening experience to anyone thinking about retiring abroad. Whether they decide to retire in Kerala or not, there are valuable lessons to be learned from a community that is studied as an economic puzzle and gem of the world!

Investing for Retirement: Aspire To Be Worth Your Weight In Gold!

2008-01-11T04:25:00.001-08:00

I'd like to propose an aggressive retirement investing aspiration that just might help to focus the vision on a rich and fulfilling retirement: aspire to be worth your weight in gold when you retire.

I've been reading a number of posts lately that piqued my curiosity about the familiar phrase: "Worth Your Weight in Gold". Something inside was telling me that there was some kind of inspirational analogy here to motivate would be investors. We've heard the lines in movies before where the sultan or the king will pay the winner/ knight/ warrior/etc. their weight in gold. It's an unbelievable sum of money when you first think about it. But, with a little help from our finance bloggers out there you'll see that it is actually within reach.

How much would that be for the average US man and woman? Well, let's take the average height and weight. The average man is 5'9" tall and weighs 185 pounds. The average woman is 5'4" tall and weighs 163 pounds. Let's just average out that weight and we get an average human weight of 174 pounds. So, the magical Your Weight in Gold calculator tells us that is worth $2,234,243.52 based on the latest spot price of gold.

This one aspiration can lead us in the right directions to a happy retirement. To aspire to be worth your weight in gold is to aspire to be healthy, wealthy and wise in retirement.

Healthy because if you aren't healthy and happen to be gaining a few extra pounds, you need to work hard to save up enough gold for each pound, namely $12,000 per pound. So, you keep in shape because it makes you feel great and happens to help you achieve your new gold aspiration. So a few extra pounds isn't so bad, but more than that and we just may need that extra savings for more medical bills.

Wealthy because you've aspired to knock the socks off of the average American's retirement savings nestegg ($250,000). While some are forced to make due with social security and meager savings, you're probably investing, mentoring, giving to family/friends/community, and thriving in retirement.

Wise because you're a student and a teacher of personal finance philosophies. You're a reader and likely even a blogger of personal finance ideas. Most definitely a practitioner of the some of the very best advice and philosophies in personal finance.

Ok, you're asking: "It sounds great to have that aspiration, but just thinking it isn't going to make the numbers work. That sounds like a hefty nestegg to prepare. How to do it? Some numbers please?". Well, luckily I stumbled upon a blog that got me to thinking about all of this, Hunter Nuttall of HunterNuttall.com outlines How To Create A Seven Figure Residual Income. Take a look and I think you'll be inspired that this is quite doable. Now Hunter's goal was to show you that it's possible to build a portfolio that paid you a seven figure income from it's returns annually. We don't have to go that far into the horizon to get our weight in gold, so let's see how that would work out.

Play around with this handy compounding calculator using 11% as S&P 500 annual return on a $12,000 annual investment to tweak for your horizon. You'll find that it only takes us 27 years to get to our magical weight in gold ($2.3 million). So, you say "I definitely am a believer in the power of index fund investing for S&P, Small Cap and EAFE (foreign index)." That's great, me too, but I propose that you get aggressive in your savings and take advantage of all the free money around you. When I say aggressive, I don't mean to get into risky investment vehicles. Stay with the standards and easily managed index funds. Facts are that every other mutual fund tries to beat the S&P500, so why not stick with the S&P500 :-)...

Read up on all the financial blogs where they detail about maxing free money and this could possibly add 1%, 2%, 5% or more to that compounding calculator, if not, it will certainly add some dollars! Keep with the safe index funds of your choice. So, let's play with the magical compounding calculator again and see what our horizon would be with a few extra thousand a year and a point or 2 of added return (because we took advantage of low-risk super high return opportunities to help us).

Simply adding 2% points and $3000 a year to our numbers so that your investing $15000 a year at 13% we reach $2.28 Mil in 23 years. At $20,000 and 14% a year you reach $2.35Mil in 20 years.

I've outlined some strategies for maximizing your returns and free money available to you that has lots of jumping off links to other great blogs. This is just a kick start in that direction of 'Wise', I think these concepts can really invigorate and open up an avenue for more aggressively having funds avail for investing and increasing overall returns on your investments. And when I say increasing returns, I don't mean do risky investments I mean taking advantage of ideas like below where you have free money and cheap money that brings you almost guaranteed returns (401K matching at 50%, espp discounts, Uncle Sam paying 1/3 of your retirement = instant 30% returns, etc.):

HELOC + ESPP (or 0% Credit Cards) = FREE MONEY (15% to 60%+ returns)! - This was my latest revelation that I'm trying to take advantage of this year. I'm kicking myself in the butt for not thinking of this before. All that cheap money sitting in my HELOC that I could have been getting free money from my ESPP, darn! Better late than never! These are some seriously big % returns potential.

You Are A Great Investment, Don't Be Stingy! - This is a topic you hear about on many blogs and it's so valuable. You can seriously increase your yearly savings potential by increasing your salary through education. Now this doesn't mean you have to go back to school. In this post I outline and list a multitude of certifications and the increased salaries they will bring.

Your Personal Stock Market Army - The Stop Loss! - OK, this strategy working with ESPP above, or anytime your investing in stocks will have a profound effect on increasing your returns and minimizing your losses!

Solving Our Savings and Budget Issues - The No-Budget Budget Way - I think this is a good read for getting the juices flowing about the tweaks you can make on a monthly basis for finances and budget to maximize savings.

Do You Have an Emergency Fund? - If Cash is King, Then Don't Neglect His Good Looking Brother, the Prince of Credit! - This concept, is a must see if you're in a dilemma about building an emergency fund. It's an option, if chosen, can free up funds for investments and again maximize that aggressive compounding schedule!

Now, this is a handy aspiration that you can share with your grandchildren, niece, nephews, children. When you think about it our grandchildren have a time horizon that every investor only dreams they had. How about the next time you give the grand kids some cash in their birthday cards, you write a little note like: Johnny, this is a magic $100 bill that will bring you 'Your Weight In Gold! ... ask me how my next time, my little sweetie!'

Explain to your 5 year old grandchild that weighs 40lbs, with your friendly Your Weight In Gold calculator, their weight in gold would equal $513,619.20 dollars. Now you explain to little John or Jane that $100 added every year and compounded in an index fund for s&p 500 avg return of 11% for the next 60 years will equal: $518,218.03 (their weight in gold from one little $100 bill as the starting point).

This week plonkee money hosts: carnival of personal finance: photo quiz edition you'll find this post from Teaspoon there:

Investing for Retirement: Aspire To Be Worth Your Weight In Gold!

Plonkee takes you on a visual picture quiz-tour of British People and Buildings, have some fun and see if you can guess them ... answers at the end of the carnival! There's a good number of posts to read.

My Favorites - from the Carnival of Personal Finance #134

2008-01-09T00:08:00.001-08:00

This week MrsMicah hosts: Carnival of Personal Finance 134: Building on the Basics you'll find the following post from Teaspoon:

Retiring Abroad - Or, Maybe Sailing Around The World for Free!

There's a good number of posts to read. Here's some of my favorites:

Patrick from Cash Money Life has a new take on your assets. He believes that Your Greatest Asset is the Ability to Create Income. Really enjoyed this post. I really like to review ric edeleman’s articles every now and then I find something that makes a new paradigm shift. He did this same topic from the point that you need to get your disability insurance before any other type of insurance … cause like Partick says, you’re protecting your most important asset! I never thought much about disability insurance until this concept hit me, afterwards I’ve maxed out my, virtually free, disability insurance offered at work and learned more about the short term vs. long term disability insurance. Definitely an eye opener, kudos on a great perspective. Morale of the story: Educate and insure yourself … you’re worth more than your weight in gold and maybe more! At 190lbs I’m worth at least $2,402,208.00 in gold :-)

David from My Two Dollars gives us some Tips On How To Avoid Internet And Financial Scams. This post is especially timely as I've been helping my mother lately clean up her computer from all the crazy internet ads. It's sad that there's such a plethora of these scams and advertising adware (which is another scam to get you to click and make other people money). Like David, I'm familiar with what not to click on for pop-ups and ads and mail internet scams, but our parents and loved ones might not be. It's frustrating that they're held hostage from breathing easy when they use their computers. David has some great suggestions to watch out for. I even suggest that folks look up more info on PF Bloggers on scams and identity theft to help get even more educated.

Marcus Hochstadt tells us how to Pay Business Expenses Wisely And Travel For Free. Great post. I was a total late bloomer to this concept but am a believer now. My card of choice is the Alaska Miles Visa. I push all bills and expenses through that card and pay it off and get great miles for it. Recently I was looking for a refi and found that they give 1300 miles for every 10K that you finance. I thought it would be bad choices, but all mortgage companies were premium choices and quotes gave my bank a run for the money. I've been able to do a lot more free/discount flying as a result. Love it!

Hunter Nuttall of Hunter Nuttall.com outlines How To Create A Seven Figure Residual Income. You'll like this post. It's fun with numbers and puts the power of aggressive savings and investing into perspective. All you whipper snappers out there, take a look, you've heard it before saving early and not that aggressively will pay off handsomely! This is the other half of the equation that makes sure you are worth your weight in gold!

MoneyNing from Personal Finance Blog with Money Ning reminds us all to Increase Your 401k Contribution Rate During the Beginning of the Year. Great post to read right away and get yourself started on the right track with your 401k for 2008!!! I like the concept of squeezing the 401k tournip a little at the beginning of the year. Like you say at 2% you’ll hardly notice (especially as it’s often pre-tax contribution). Goes along with my 2008 resolution to max my ESPP to get all of it’s free money out and try and max my 401k (which isn’t an easy task!).
Teaspoon

Retiring Abroad - Or, Maybe Sailing Around The World for Free!

2008-01-03T20:25:00.001-08:00

Many thanks to Millionaire Mommy Next Door and her post on 10 Ideas on How To Retire On Less. It's a great read and will give you some ideas of how to enhance your situation so that retirement is a little more comfortable.

One of the ideas was to 'Retire abroad'. This really struck a chord with me, as I've always been interested in what it would take and if it was possible for the average Joe? I had the perception that this was for those with big cash and resources. So, thanks to Mommy's initial research links I wanted to dive in and uncover the high level requirements for this goal. The bottom line is that for many Americans it will be impractical to retire on small savings and your social security check in the US.

OK, there's so much to research about this topic of retiring abroad, that I'm sure I'll be putting together a few more posts. For now I wanted to focus on a quaint retirement dream that I've had and perhaps others as well...

At EscapeArtist you'll find a plethora of information about every related topic to living and working overseas. They have 4 different ezines and all are free with tons of great content. I've always thought that a great way to retire is on a large sail boat and sail around the world. Although my expectations were that you'd probably have to be rich to do that realistically. There was a really interesting article at EscapeArtist called Sailing Around the World For Free. Wow, now we're talkin! There's a method to this mad goal, that you should prepare ahead of time getting some experience. Of course, that makes sense:

There are many different positions that crew can choose from on boats of all sizes. At the bottom of the crewing job pile (and the easiest to get) is a position on a cost-sharing boat. This is where the crew pitches in some money (usually $20 - $70 dollars a day) to help the owner cover food, fuel, and marina costs. Beware of the boat that advertises “cost-sharing” of $1000 or more for a week. In this case, the boat owner is usually trying to make money and calling it a cost-share instead of a charter. In a true cost-share arrangement, you are simply paying your own way and the owner makes no profit from you.

Ok, this is actually a pretty nice deal. Paying from $560 to $1900 a month for all expenses paid for living the life sailing the world is pretty tempting! But, it get's better. With some planning and learning you and your significant other can gain experience and certifications that will elevate you up to fully PAID living on the sea, without a lot of super hard work:

The next step up for crew would be a totally free ride, where the owner covers all costs. In this situation, the captain can sometimes be a professional skipper, or the owner. This free ride arrangement is frequently available when boats need repositioning or delivery. In exchange for your help moving his boat, the owner covers food, boat costs, and some will even pay your return airline ticket home.

OK, getting better. Definitely, but looks like you need a little experience to get to this point, right?

A delivery is a great way to gain experience and sea time, without having to pay for it. Sea time is needed if you wish to pursue any sort of a career on boats, racking up certifications such as the coveted Yachtmaster; which allows you to pilot a commercial vessel. In addition, after a delivery, you are no longer inexperienced!

Hey, looks like you might even be able to add some cash to your little nest-egg while enjoying the rolling sea:

Should you land a paying job, keep in mind that since many boats are registered offshore your wages may be tax-free. Since all your living expenses are covered, you can save almost all your paycheck. The top paid yacht captains on large private yachts over about 200 feet can make $1,000 per foot, per year, totally tax-free.

Stop by and check out the article in it's entirety. Perhaps it will be the seed to get your sailing research going :-).

Here's plenty of other links on living abroad that go all aspects of this endeavor. So far, I still seem to have an itch and there's so much information in these links that I'll be doing a few more posts on the topic.

Retiring Abroad

Retire to the Sun

The Top 5 Places to Retire

Living Without Borders

A Radical Retirement Plan

My Favorites - from the last Carnival of Personal Finance for 2007

2008-01-02T20:58:00.001-08:00

This week wereindebt hosts: Carnival of Personal Finance #133 - Last of 2007 Edition you'll find the following post from Teaspoon:

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

There's a good number of posts to read. Here's some of my favorites:

Free Money Finance takes another look at paying off your credit cards versus investing. I like this post and agree with Money that you should try and fund both 401k and paying off credit card. Especially if you get a 50% or more match from employer on 401k, since that would be likely greater than any credit card debt.

My Dollar Plan has 181 personal finance accounts. Talk about complex. They do have a strategy for managing all of those accounts though. Now this was the followup post that I was looking forward to. Remarkable to see how Madison manages money finances and credit card arbitrage. Keep up on her site, as she continues in a series of posts to go into additional detail of her unique personal finance account management strategies.

The Financial Blogger looks at adding your property into your net worth calculations. I agree with Financial Bloggers message: that your equity should be included in your net worth calculation. Especially since it's readily avail via HELOC, Cashout Refi, Homesale as tax-free capital gains.

Millionaire Mommy Next Door has 10 tips to help you retire on less. Lot's of good ideas to think about in this post. The one idea that hit a chord with me the most was 'Retire Abroad'. I've always been interested in this and had never taken the time to research. Millionaire Mommy adds some great links for more info on researching this option.

My Favorites - from The Carnival of Personal Finance #132

2007-12-25T19:03:00.001-08:00

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

2007-12-20T21:53:00.001-08:00

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)!

2007-12-15T02:52:00.001-08:00

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!

2007-11-29T20:03:00.001-08:00

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

2007-11-22T00:19:00.000-08:00

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:

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 :-).
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.
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.
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?

2007-11-15T01:31:00.000-08:00

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

2007-09-06T00:36:00.001-07:00

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!

2007-09-02T16:52:00.001-07:00

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:

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.
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:

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.
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!
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

2007-08-28T22:15:00.001-07:00

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

2007-08-27T00:12:00.001-07:00

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

2007-08-23T23:33:00.000-07:00

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

2007-08-22T02:05:00.001-07:00

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

2007-08-21T23:55:00.000-07:00

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.

Zen and The Art of Personal Finance in 4 Steps

2007-08-20T21:57:00.001-07:00

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?

2007-08-17T23:53:00.000-07:00

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?

2007-08-16T23:16:00.001-07:00

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?

2007-08-15T23:24:00.000-07:00

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!

2007-08-14T23:54:00.001-07:00

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?

2007-08-13T22:44:00.001-07:00

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?

2007-08-12T17:32:00.001-07:00

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 :-).

Automatic Investing is Hot!

2007-08-11T23:08:00.000-07:00

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?

2007-08-10T23:24:00.001-07:00

Unless you've been on a vacation island for the last month, you've noticed something brewing with the mortgage industry. A CNNMoney.com 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:

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
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
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).
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

2007-08-09T19:40:00.001-07:00

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 geezeo.com and wesabe.com. 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 wesabe.com 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 wesabe.com, expensr.com, and buxfer.com: Online Finance Help. He was impressed with the capabilities of the sites. He was especially impressed with wesabe.com:

The best of the bunch is wesabe.com, 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 Prosper.com, Zopa.com, and LendingClub.com 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?

2007-08-08T01:12:00.001-07:00

Another favorite finance blog post I'd like to highlight to share some great blogs out there that I enjoy regularly.

www.getrichslowly.org/blog 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: http://ricedelman.com/planning/default.asp

Great Finance Blog Post - How You Can Become Wealthy

2007-08-08T00:42:00.001-07:00

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.

www.freemoneyfinance.com 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 :-)

2007-08-07T08:25:00.002-07:00

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

2007-08-06T19:08:00.000-07:00

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 www.creditboards.com. 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 creditboards.com 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

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

FICO Checkup - Pull your reports and scores and see where you stand. Use MyFico.com 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 www.TrueCredit.com. 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 www.creditboards.com I learned that if you want to monitor your scores and report, use www.truecredit.com many folks do that to great success. But, once a year/quarter/before refi/etc. pull your score from myfico.com. This is the consumer end of equifax.com and they publish the real FICO scores that the banks get. The scores that www.TrueCredit.com 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 MyFico.com 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 MyFico.com .

Now, I'm sure I heard a couple of people pipe up and say: why even pull truecredit.com reports and scores? Just use MyFico.com all the time. Well, it comes down to money my friends ... cold hard cash. www.TrueCredit.com and there are others that you can learn about on www.creditboards.com 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 MyFico.com costs about $45.00 ($40.00 if you can find promo coupons and there generally are some posted on creditboards.com).

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 www.annualcreditreport.com.

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 http://www.creditboards.com/ 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:

before...


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 Creditboards.com about closing accounts. Take a look back at the charts at Myfico.com 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.

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

Go online to http://www.truecredit.com/ or another monitoring service that you're familiar with and monitor your score and credit reports. I like to use truecredit.com 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 Myfico.com 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

Shawshank Redemption - great personal finance lesson...

2007-08-05T21:36:00.001-07:00

Shawshank Redemption has been called one of the greatest films in history. Not only a great film, but a pretty darn good personal finance lesson too. Compare the journey of Andy Dufresne's (Tim Robbins) to your own personal finance journey. Basically, Andy dug his way out of prison with a rock hammer (tiny little hammer that fits in the palm of your hand) and about 20 years of perseverance. A great illustration of moving a mountain with a spoon (it takes a long time, but it can be done)! If you haven't seen the film, here's a great summary from Wikipedia. Andy obviously had some hardships in his life that led him to prison. While he was in prison he had even more hardships with the life in prison and he devised and enacted a plan.

Similarly, many of us have found ourselves, to varying degrees, stuck in a financial prison and taking the hard knocks that life’s lessons can dish out. At some point we've realized that we need to dig our way out. I believe all of us can track our memories back to a point when we had an epiphany in our financial education. Some point when we finally realized we need to have a plan to attain some kind of financial goal in life.

Throughout our financial education we've realized even more epiphanies where more and more aspects of personal finance become ever clearer. These are great moments in our lives that lead to a new level of prosperity. Like realizing that not investing in a 401K is like giving money away to Uncle Sam and your employer. Realizing that having a mortgage vs. renting can allow you to save money, build for retirement, and build equity. Learning how your fico score affects getting a great mortgage. Learning how to invest that 401K money in index funds. Learning how to attack credit card and other debt. The lessons are endless and multi-faceted depending on each of our individual situations.

One of my great epiphanies was learning that I have the best chance of achieving my goals, by breaking my action plan down into manageable tasks. Before that, I would shotgun attack the problems at every angle. We can all probably feel the similar realization of our goals when we've made strides in our own personal finance education. The strides were likely made when you implemented little lessons one at a time in bite size fashion. This serves several purposes. First, we avoid being overpowered by the problem. Second, it allows us to realize progress and be encouraged to continue the journey.

Whenever I realize I need to learn something or grow in a particular area, I'll research online and in the bookstore to learn more. Then I'd look for a good place to take that first step. There are many little teaspoons of wisdom that I've tasted over the years that have helped me realize my financial and life goals. I hope to blog on each of these in more detail soon.

exchange rates 1.12.08	Avg price in rupees	in USD	in EUR
Cigarettes (10 Local Brand)	24.00	0.48	0.38
Cigarettes (20 Imported, Marlboro)	80.00	1.61	1.27
Clothes - FlipFlops ('Bata' or non-branded)	120.00	2.42	1.91
Clothes - T-Shirt (non-branded)	130.00	2.62	2.07
Clothes - Sports Shoes (non-branded)	200.00	4.03	3.18
Clothes - Pair of Jeans (non-branded)	200.00	4.03	3.18


	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%