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

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

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

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

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

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

Considerations and things to think about:

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

You'll find this post on the following carnivals:

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

118th Carnival of Debt Reduction - Winter Solstice Edition

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Zen and The Art of Personal Finance in 4 Steps

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What's Your Net Worth Grade?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Is There a Silver Lining in the Mortgage Meltdown?

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

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

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

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

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

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

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

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

Automatic Investing is Hot!

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

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

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

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

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

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

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

Shawshank Redemption - great personal finance lesson...

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.