Keeping separate finances is a bad plan for your money

Financial author Matt Bell tackles a problem we haven't written on lately: the rising proportion of couples who are keeping separate finances.

He cites a recent Money Magazine survey in which:

• 71 percent of married Americans acknowledged keeping secrets about their spending from their spouses
• 44 percent said keeping secrets about money is acceptable under certain circumstances
• 40 percent admitted that they tell their spouse they spent less on purchases than they actually did (women lied mostly about clothing, shoes, and things for kids; men lied mostly about things for the car, entertainment, and sports tickets)

Matt's perspective is in line with what we've written on the subject in SMI:

I don’t care how many people have gotten on the separate accounts bus. I’m clinging to my quaint, clearly out-of-fashion point of view that the ideal way for man and woman to get along financially is to practice full financial disclosure before marriage and complete financial transparency after marriage.

Full financial disclosure means talking about money before marriage. A lot. It means detailing how much debt you have, how you got it, and what you’re doing about it. It means revealing how much you have in savings and investments and how much you earn.

It isn’t about interrogating each other; it’s about talking with each other about something that’ll impact countless aspects of your relationship.

And here’s where I’ve really gone off the deep end. I have this odd point of view that if one person had a lot of debt before getting married, after the wedding, both spouses have a lot of debt. If one was rich before the wedding day, the minute the vows have been said, both spouses are rich.

This isn't a very popular opinion these days. And it's understandable why the numbers have shifted this direction over the years as divorce has become so much more common (if eventually separating seems like an eventual probability, it can feel like preparing for it financially is a smart, even necessary, move).

I found this comment to Matt's post particularly telling. (I've added the emphasis below.)

As a marriage counselor I concur with your statements about the need for joint financing. I cannot count the number of couples who come to see me with problems that seem to be unrelated to money yet when we look at the whole issue – separate money is at the root. I tell all couples, in new marriages and old that separate money is asking for trouble. When I counsel engaged couples I am particularly strong with them because I don’t want them coming back in 5 years!

If you're married and keeping separate money, I encourage you to prayerfully consider whether this is the right course of action. It might be worth picking up a copy of Matt's book (mentioned in the post; note that I haven't read it).

As always, I'm interested in your (non-judgmental) thoughts on this sensitive matter. You might have an insight that could really help someone else reading this (as iron sharpens iron...).

Inflation History: The Rise and Fall of the U.S. Dollar

Posted by Mark at 12:21 PM | Comments (5) | TrackBack
Category(s): Family Finances
Tag(s): budget, family finances

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Save money by using Upromise

Hello again friends! Hope everyone had a great Thanksgiving.

Before diving back into market stuff, I thought I'd comment on a pleasant surprise from this past weekend. Like many Americans, I took advantage of some of the deep store discounts offered. The combination of my loathing of physical shopping and my researcher temperament makes me a natural for the online madness that has become the "Black Friday - Cyber Monday" weekend. Not that I'll go buy a bunch of stuff I wasn't going to buy otherwise, but I will try to think through things I'm going to be buying soon and make those purchases while they're sharply discounted.

(That's one of the benefits of being debt-free and having a savings reserve, by the way. You can dictate your own purchase schedule to take advantage of opportunities, instead of having to wait until a crisis hits and pay whatever the current price is.)

As I've mentioned before ( Members Only), I've been a Upromise member for roughly a decade now. Upromise is basically a rewards program that deposits your savings into a college 529 plan account. (You can read more about how it works here.) 529 plans are a great way to save for college, the Upromise arrangement takes virtually no effort on our part, and I have young kids, so it's been a good fit for us.

I should note that nearly all of the benefit we've received from Upromise has been as a result of earning 1% back on all of the purchases made with our Upromise Mastercard. We don't think about it — it's very similar to earning 1% back from Discover or a whole host of other cards.

Anyway, a week or so ago, I got a mailing from Upromise touting a great savings opportunity they were providing between now and the end of the year. Normally that stuff goes straight in the trash, but for some reason I actually noticed it and took the time to look it over (hire that marketing person!). Bottom-line: Upromise was offering an additional 10% cash back on any online purchases made with the Upromise Mastercard at their roster of vendors. (You have to go through the Upromise site first and link to the partner's site from there, but then you're just shopping the vendor's normal webpage.)

In addition to that, they had a calendar laid out of all the vendors that were offering special savings rates. For example, Best Buy normally pays 2% back to Upromise members online. But for a particular week (and as it turns out, most of this past weekend), they were bumping that to 10%. So for someone like me with a Upromise Mastercard, the total contribution to the 529 plan on Best Buy purchases would run to 21% on those days (10% from the vendor, 10% extra Upromise offer for their Mastercard users, plus the standard 1% for those MC users). And that's after whatever sales/markdowns they were already running for Black Friday, etc.

Best of all, the roster of vendors is surprisingly robust, and a bunch of heavyweights are part of the expanded savings calendar. Add it all up and there was serious savings to be had.

Again, I should reiterate that if you're the type to get sucked into buying more (very easy to do) because of the illusion of savings, this is not necessarily a good thing for you. But we got some fantastic savings on some things this past weekend.

For example, this week's featured vendor is Sears. We've been planning to replace our 15+ year old washing machine, given that the wash tub is quite small and our kids' clothes are getting bigger and bigger (we don't know how old it actually is — it came with our first house over 15 years ago). My wife is the rare gem who would actually ask for that as a Christmas present, so I was already looking and doing my homework when I realized the potential savings at Sears.

We've had very good past success buying Kenmore appliances that are highly rated by Consumer Reports. One I was considering was already on sale this past weekend, marked down from $822 to $599, with free shipping. Sears was also running a Cyber Monday promotion that knocked an additional 10% off. Finally, by purchasing through Upromise with their MasterCard, a further 21% discount applied (technically the final 21% isn't a discount off the price, it's money that will be deposited in our 529 account).

Final tally: that $822 washer was available for $426. That's nearly half off.

I admit, I've never bothered to shop through the Upromise website before. But my experience this weekend (coupled with Matthew's October Level 1 article) have opened my eyes to the potential.

I'm sure my friends at Dave Ramsey would cringe to read this, because they'd argue I'd be better off without the credit card, paying cash instead. Overall, they'd likely be right. But the reality is I'm going to buy a certain amount of stuff online like this. In the past, most of that has gone through Amazon. Now, I'll at least take a quick peak at the Upromise options first. And that's exactly why it's worth it to those vendors to rebate in this way.

If you're a current college saver and are looking for a good rewards card, you might want to check out Upromise. Naturally all the usual disclaimers apply: don't do this unless you are very disciplined, pay your balance in full each month, and so on. You need to know yourself and evaluate whether this will be a helpful tool or a trap for you.

(This post may sound like a paid endorsement for Upromise, but it's not. There's no relationship or benefit being conveyed in any way...it's just my reporting on something I found beneficial. If some number of readers can benefit as well, that would be great.)

Anyone else taking advantage of Upromise's discounts this year?

Inflation History: The Rise and Fall of the U.S. Dollar

Posted by Mark at 3:55 PM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): family finances, save money, Upromise

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Christian financial principles are rooted in God's Word

SMI helps “prepare God’s people for works of service, so that the body of Christ may be built up until we all reach unity in the faith and in the knowledge of the Son of God and become mature...” (Ephesians 4:12-13).

We focus on teaching Christians how to set and implement financial priorities that are honoring toward God. Therefore, our teaching begins with the principle that the things most worth knowing are rooted in God’s Word:

• “All Scripture is God-breathed and is useful for teaching, rebuking, correcting and training in righteousness” (2 Timothy 3:16). It’s worth knowing that we should look primarily to God’s wisdom, not the conventional wisdom, for principles to guide our decision-making. The principles God has given us are practical and personally relevant.
• “Now it is required that those who have been given a trust must prove faithful” (1 Corinthians 4:2). It’s worth knowing that we must each accept personal responsibility for making knowledgeable, biblically-consistent financial decisions. We cannot look to others to make the tough choices for us.
• “The rich rule over the poor, and the borrower is a servant to the lender” (Proverbs 22:7). It’s worth knowing that debt is enslaving and that we should avoid it as much as possible.
• “In the house of the wise are stores of choice food and oil, but a foolish man devours all he has” (Proverbs 21:20). It’s worth knowing that maintaining a proper balance
  between current spending and long-term saving is a sign of wisdom.
• “The plans of the diligent lead to profit as surely as haste leads to poverty” (Proverbs 21:5). It’s worth knowing that we should consistently invest from a carefully considered strategy rather than impulsively on a case by case basis.
• “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth” (Ecclesiastes 11:2). It’s worth knowing that we should rely on diversification—rather than a preoccupation with market cycles—as a means of controlling risk and protecting our capital.
• “Do not wear yourself out to get rich; have the wisdom to show restraint” (Proverbs 23:4). It’s worth knowing that we must be on guard against greed and spending our energies in a futile attempt to get the highest possible returns.

God has given us protective principles to help make day-to-day financial decisions. By following these principles consistently, you and I can have confidence that, whatever the short-term sacrifices may be, we are making wise spending, saving, and investing choices. That frees us to leave the results with God, knowing that “Godliness with contentment is great gain” (1 Timothy 6:6).

Inflation History: The Rise and Fall of the U.S. Dollar

Posted by Austin at 10:46 AM | Comments (0) | TrackBack
Category(s): Christian Interest, Family Finances, Giving and Stewardship, Investing Principles
Tag(s): Christian interest, giving and stewardship, investing principles

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Will buying quality over quantity save you money?

I have a love-hate relationship with IKEA. I'm grateful that they offer a clean, modern design aesthetic at unbelievably low prices. However, you have to be careful what you buy at IKEA. As much as it pains me to write this, it seems that more often than not, you can buy some poorly-constructed products.

The first time I went to IKEA was October 2003 (there are no IKEAs in Louisville, but we were in Chicago on a getaway). Being a big fan of modern furnishings, but having little money at the time, it was like going to Disneyland for my wife and I.

Two years later we went back and bought two nightstands, a wide 3-drawer dresser, a tall 5-drawer dresser, and a wardrobe for $350. What a deal, right? But when you start assembling the furniture with that little hex wrench they give you, you quickly realize that these are not heirlooms we will be passing off to our children. Particle board chips. Veneers peel. Cams get stripped.

Now in all fairness, these particular pieces have at least a few years left. No peeling to speak of and the drawers all open and shut fine. The doors are impossible to align though, and the wardrobe is buckling a bit from the clothes on the rod. But other pieces we've bought haven't fared nearly as well, like the end tables, the can opener, a few of the picture frames, and so on.

What's my point? That if you can afford it, buying quality, I believe, could save you money. For instance, we would have saved $4 on the can opener had we just bought a good one to begin with (like the one we bought to replace the IKEA one). Our end tables, while they weren't expensive, have some veneer peeling and bubble spots and they just need to be thrown away quite frankly.

Now I'm not saying you can't get good stuff there. In fact, we still really like going. We bought a huge mirror for $100 that would have cost $600+ in a similar style somewhere else. We like the lamps we've purchased, as well as some kid's furniture/decor items that seem to be holding up quite well. You just have to be careful.

But there's another way you can get in trouble: most everything is such a good deal that it's easy to buy more than you need. Because of the price, I find it tempting to buy things that I only kinda like, rather than holding out for something I love. In fact, I have the same issue with Old Navy that I do with IKEA. Clothes are insanely cheap, and usually, cheaply made. Rarely do I see something there that I just love, but often times I see stuff I like (actually, I more or less swore off Old Navy for this very reason... last week was the first time I'd been in an Old Navy in over a year). The clothes can be great for kids, it's just that often times they don't last.

So I've decided that I'd rather have one really nice shirt from J. Crew than 4-5 shirts that I only sort of like from Old Navy. It's likely to last me longer and I'll get more enjoyment out if it when I wear it. And the same goes for IKEA. I'd rather have one really nice living room coffee table from Room and Board, than a whole living room collection that I just sort of like from IKEA.

This commitment to quality over quantity got me to thinking, "I wonder what our Facebook Fans" think of this tactic. So, I decided to ask. Here's how a few of them responded:

Fred from Louisville wrote: Quality weathers the bounce of the market. Quantity doesn't matter if you are loosing money.

Martha from Richmond wrote: It is far better to buy quality than to have to turn around and replace something that doesn't last. Quality shows.

Jason from Orlando wrote: Total cost of ownership (TCO) this is often forgotten about in the equation. Also there is the intangibles, the way I feel (and perhaps perform better/produce more) with quality in my hand versus something cheaper. Likewise, is it provable (objective) quality or is it inferred (subjective via suggestive adverts)?

And our friend and frugal guru Mary Hunt from Debt-Proof Living wrote: Match quality to need. If you'll use it very little (Halloween costume), get the cheapest one you can find. If you'll use it every day for as many years as you can possibly get out of it (car), buy the most quality you can afford.

So what do you think about what I've said. Do you agree or disagree? When is it best to buy quantity vs. buying quality?

Inflation History: The Rise and Fall of the U.S. Dollar

Posted by Matthew at 2:10 PM | Comments (2) | TrackBack
Category(s): Family Finances
Tag(s): budget, family finances, quality over quantity, save money

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$1,000 impulse buy?

I recently blogged on the best spending decision we ever made. One of the key principles, if not THE key principle, is to spend with your goals in mind. The post explains why this principle is important. In fact, it's so important that I'm going to stop right now to give you a chance to read it. Go ahead, I'll wait right here...

... Back? See my point about being intentional with your spending? In the same way that you should invest with inside-out thinking, you should spend with inside-out thinking. Well, a recent spending opportunity came my way. Let me paint the picture for you:

It was a lovely Saturday afternoon and I'm at Costco with my 6-year-old doing some grocery shopping. Walk in, turn the corner past the TVs and there sits a nice, brown sectional. It's big. Seven different configurations. Child friendly micro-suede fabric. And only $999.

Now it's our ideal family couch for the basement. In fact, we had talked about this very thing... a big, brown, sectional, perfect for a family night watching some Netflix with the kids. But, what we really need first is a couch for the living room. We still have a futon as the primary seating in the living room (also purchased from Costco) and it really needs the new furniture before any other area of the house. And while we could use this sectional in the living room, it's a little big for the space and not conducive for the arrangement we had in mind.

By now you've figured that we did indeed buy the couch. And it currently occupies the living room and doesn't look completely terrible. The futon has been moved to the basement, which provides some much needed seating downstairs. But did we spend with our goals in mind?

• Functional: Yes
• Aesthetics: Yes
• Value: Emphatic YES
• Comfort: Maybe (my wife isn't blown away by the coziness of this couch, which is ironic given our Costco futons aren't the most comfortable either... but I'm thinking with some time it will break in... at least I'm hoping).
• Timing: NO

So how intentional were we with our spending? Did we order the lobster?

On one hand, I'd say no. Getting a couch like this was a part of our plan, it just wasn't top priority furniture-wise. It was an unbeatable value. We had the money for it.

On the other hand, I'd say we botched it. The timing wasn't great. While it would have cost more to get a more comfortable one, we shouldn't let value trump comfort. And if the right living room couch does come our way, we may not yet have the funds to buy it because we sunk them on this couch.

So I guess the question becomes, does a good spending decision have to meet ALL your goals. I'd say no, a good one does not. But good is the enemy of best and for that reason, I'd say it wasn't the best decision we could have made.

But maybe you see it differently? What would you have done?

Inflation History: The Rise and Fall of the U.S. Dollar

Posted by Matthew at 11:39 AM | Comments (11) | TrackBack
Category(s): Family Finances
Tag(s): budget, family finances, impulse buys, planning, priorities

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The #1, best, top, absolute greatest spending decision we ever made

It was 2003. I had a job doing development work for a non-profit, and my wife was in charge of an operations department of a trust-company. In an effort to focus on debt-reduction, we had lived in an apartment since getting married. But our son was getting older, the apartment seemed to be getting smaller, and we were getting anxious to become first-time home owners. And since we had made significant progress on our debts, we felt we were ready.

While my job didn't pay a ton, it could help us afford the essentials. My wife made decent wages, and we had good insurance through her job. So between the two of us, we were doing all right. Our apartment was in a good school district, so we wanted to stay in the area. We both had been in apartments since around 1993, so having our own space and a yard were important to us (and the thought of a garage was sheer bliss). Other than that, there were many questions still to answer.

Should we get brick or vinyl? Ranch or 2-story? Quantity of space or quality? These, among other factors, are always a consideration. But there was a bigger factor at play here: cost. And this is where home buyers can get in trouble, buying too much house.

You see, at the time, lenders were asking, "How much house can you afford?" with the implication being, however much you can afford is what you should buy. And that becomes the dominant factor in the buyer's mind, "How much can we afford?" This was and still is the WRONG question to ask.

I'm not sure why this mindset doesn't permeate most all of our other spending decisions. I mean I'm glad it doesn't, but why not? When you're at a restaurant, do you order based on what you can afford or on what meets your goals of taste, appetite, value, smell, nutrition, and so on? You don't likely open a menu and say, "Because I can afford the lobster, that's what I'm getting. Yes, I'm allergic and I'm gonna swell up like a tick. And no, I don't like eating giant, wet bugs that reek of salt and death. But I can afford it so by golly, I'm getting it." While cost may somewhat dictate which restaurant you visit, my point is that it's not your primary basis for what you order... or at least it shouldn't be. You should base it on your goals.

So when it came to our first house purchase, we asked not what could we afford, but what could we spend and still be in line with accomplishing our goals. What were our goals?

• Eliminate remaining debt.
• Continue to increase our giving each year.
• Send our son to a Christian school.
• Allow my wife to stay at home if she desired.
• Getting a house big enough to allow for more children but not so big so as to be too much to manage.

So we turned down bigger and nicer houses in bigger and nicer neighborhoods. Instead, we found a great little house in a great little neighborhood that allowed us to work toward our stated goals. We bought a house that we could afford on just my income because that was the single biggest factor in allowing us to work towards ALL of our stated goals.

And why was that the best spending decision we've ever made? Because literally two hours before the closing on our house, I lost my job. Two hours and totally out of the blue! Just like that, our income was cut by about 40%. And it would stay that way for the next nine months, until I came back to work for Sound Mind Investing in 2004. But we would be okay on just my wife's salary because we bought the right amount of house.

Why else was it good that we bought what we did? Because it allwowed Kim to become a full-time stay at home mom in the summer of 2006.

Why else was it good? Because we were able to get Jordan into the school we wanted.

Why else was it good? Because we eliminated all of our debt (minus the house itself) while in that home.

Why else? Because we were able to keep increasing our giving.

Notice a pattern? We were able to accomplish our goals because we spent money with our goals in mind. We didn't let the ability to spend dictate our decision (this kind of access to credit is a temptation that so many fall into when it comes to credit cards. If it's a temptation to you, ask for a lower credit limit or switch to a debit card).

So where does that leave us now? Well, for one, that first house became our first rental house. Being a landlord was something I had always wanted to try. If we had bought a bigger house, it would have been much harder to rent it. This was the perfect first house for us and the perfect first rental for us.

What else? We're due for our 4th child this week. Kim has been at home five years now and there's no place I'd rather her be.

And finally, most importantly, we're able to feel the Father's pleasure by giving freely and with great joy to causes that are on our hearts.

So when it comes to spending, spend with goals in mind. Practice the #1 way to save money on nearly every purchase and focus on what you can control by not letting the availability of money be the driving principle for your spending decisions. Don't order the lobster just because you can!

What about you? What the best spending decision you ever made?

Inflation History: The Rise and Fall of the U.S. Dollar

Posted by Matthew at 10:00 AM | Comments (10) | TrackBack
Category(s): Family Finances
Tag(s): christian finances, family finances, mortgage, spending, stewardship

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The #1 way to save money on nearly EVERY purchase

If asked for ways to save money on purchases, several ideas would come to mind: clip coupons, buy on sale, use promotional codes, etc... you know, the usual stuff. Nothing glamorous, but they work.

However, if I were asked for the absolute best, the number one approach to saving money when buying stuff, I would say: planning/timing. And before you quit reading because you're disappointed it's not some magical, secret silver bullet, let me explain.

If you're not in a hurry for something, you can wait till it goes on sale, correct? If there's no rush, than waiting to use a coupon makes sense, right? The problem is, often times we don't plan this out. We buy when we "need" something and so we're forced to pay full-price because we have an impending "deadline." We've all been there. Poor planning leads us to wait till the last minute, and the last minute rarely leads to savings. (Plus, at the last minute, there is often a poor selection). Here's a personal example.

My wife and I recently did a surprise room makeover for our two girls who will be sharing a bedroom to free up a room for our baby due in August. We'd been stockpiling decor options for several weeks, but with the makeover just a week away, we were without good curtain options.

The only thing we could find were curtains from Pottery Barn Kids (which don't come cheap I might add). Because of the time it takes to ship them (another added cost), we didn't have time to try to find a means of discount (promotional codes, gift cards, coupons, wait for a sale, etc).

Had we done a better job of planning out this makeover, we could have found some cheaper ones we like from somewhere else, or perhaps tracked down some kind of discount. But because of the timing, we paid full price + shipping. (That was painful to type.)

Timing is one of the primary principles behind extreme couponers. Yes, they add coupons on top of sales, but they don't wait until the need an item to buy it — they buy it when it's the most beneficial financially and then they stockpile the items for when they need them.

Think about it. Plane tickets usually get more expensive when you wait until you need them. The same with hotels (sure, there are last-minute deals, but the selection and quality may not be up to your standards). If you're buying a car because yours is on the brink of death and you need something stat, you won't have the time to research for the best car for your situation.

And when is it most expensive to buy clothes? When they're in season. You could have saved a bundle on a winter jacket in February if you were planning for next winter, but those savings are likely gone now.

This is why timing is everything. It affords you the opportunity to make a purchase without deadline pressures, gives you more selection to choose from, allows you to research discounted options, and — let's face it — makes the process more enjoyable overall. (And, chances are, if you're doing a good job of timing your purchases correctly, you're probably also doing a good job budgeting for said purchase because you're a good planner.)

Take my word for it: you never want to pay full price for curtains from Pottery Barn Kids. Plan better and carefully consider the timing of your purchases. I bet you'll save money almost every time.

Inflation History: The Rise and Fall of the U.S. Dollar

Posted by Matthew at 3:33 PM | Comments (4) | TrackBack
Category(s): Family Finances
Tag(s): budget, family finances, savings strategies

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The best time to start saving? Now.

Financial planner Carl Richards, who writes excellent "nuts and bolts" articles for the New York Times' Bucks blog, has a column this week about saving:

We often hear about the importance of starting to save early. Usually the examples are focused on saving whatever you can when you’re in your 20s to take advantage of the power of compound interest.

But what if you were too busy trying to pay a student loan and other bills in your 20s, or like many of us, had to use all the savings you built up to get through the last few years? Now you find yourself closing in on 40 and feeling like you missed the boat.

I've thought about this problem ever since I read about the recent study that found that nearly half of Americans wouldn't be able to come up with $2,000 in 30 days if they needed it. This reality hits home every time I have a conversation with people 35 to 45 who feel so far behind the savings game that they aren't sure what to do.

For that group the advice is no longer start early, but simply start now. The only thing that matters at this point is that the longer you wait, the more painful it will be. Compound interest can still work, but not until you start saving.

Richards notes (based on his experience dealing with clients, I assume) that people tend to "overthink things and ignore the simple advice about spending less than you earn, saving for a rainy day and avoiding larger losses."

This is why SMI uses a Four Levels approach that focuses on first things first. We believe that getting out of debt (Level 1) and building a savings reserve (Level 2) are essential to long-term financial stability.

Sure, it would be great if everyone did these things in their 20s, but they don't. The good news is: it's not too late to start.

To begin making progress in your finances, take advantage of SMI's free 30-Day Web Membership — available for a limited time only. We'll help you learn to make the most of your money. Get details and sign up today!

Posted by Joseph at 9:55 AM | Comments (3) | TrackBack
Category(s): Family Finances
Tag(s): savings

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College savings and college scholarships

In the current issue of the Sound Mind Investing newsletter, executive editor Mark Biller and and I present ideas for Making the Most of Your College-Savings Program (subscribers' link).

I discussed this same topic — along with college scholarships — earlier this week with host Bob Crittenden on The Meeting House from Alabama's Faith Radio.

If you have a son or daughter planning to go to college in the next few years, I think you'll hear some helpful information in that conversation. To listen to a 15-minute excerpt, click the arrow on the player below.

Not yet an SMI subscriber or web member? Learn more about SMI and sign up today!

Posted by Joseph at 11:50 AM | Comments (0) | TrackBack
Category(s): College, Family Finances
Tag(s): college scholarships, saving for college

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"Plan for retirement? I'll do that later"

The Wall Street Journal's Real Time Economics blog reports on a "working paper" from the National Bureau of Economic Research that finds that many Americans are remarkably ill-informed and ill-prepared financially.

The paper, based on 2009 data and authored by economist Annamaria Lusardi of the George Washington School of Business, is titled "Americans' Financial Capability." The WSJ presents some of the key findings:

– When given a basic list of questions on economics and finance in everyday life, less than 10% of respondents are able to answer all questions correctly.

– Half of survey respondents said they had trouble keeping up with monthly expenses such as bills. Only [about] half of those surveyed...had rainy day funds set aside that would cover them for three months in the event of a severe loss of income, such as a layoff or illness....

– As much as a quarter (23%) of those surveyed said they have used some flavor of high-cost borrowing, such as a pawn shop, advance on tax refund or payday loan....

– "[T]he majority of Americans have not done any retirement planning," Prof. Lusardi writes. Only 42% of those surveyed said they have tried to figure out how much to save for retirement....

– When respondents [who had retirement accounts] were asked [if] their retirement savings were invested primarily in a target-date fund, 37% said they didn't know the answer....

– [A]bout one in ten (9%) of respondents who have a retirement account such as a 401(k) or IRA said they tapped their retirement savings. Most of those withdrawals were seen among those earning between $25,000 and $75,000 a year....

– About 20% of consumers surveyed who had auto loans didn't know the interest rate they pay. Of the 46% of credit-card holders who carry a balance, 12% didn't know the interest rate on the card in their wallet with the largest balance.

Back in the days when it was much more difficult to get financial information than it is now, it may have been understandable that many people were in the dark about financial matters. Today, such information is widely and freely available. It is a shame that so many Americans stay willfully ill-informed about things they need to know for their own good — and for the good of society.

By the way, economist Anna Lusardi, who authored the paper reference above, runs a blog titled, "Financial Literacy and Ignorance." The subtitle is: "What do people actually know about personal finance? Not much, it seems."

Don't let that describe you!

Posted by Joseph at 1:55 PM | Comments (0) | TrackBack
Category(s): Family Finances, Retirement
Tag(s): personal finance blog, preparing for retirement, rainy day fund

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A Christian's responsibility to tip?

We try to limit out eating out as a family to once a week. This keeps costs down and helps us really enjoy it. Saturday evening rolled around and we decided on a place (I wanted Mexican, but got outvoted).

The night started out fine. We had a big table with a view of the kitchen (which the girls liked). The kids also got crayons and paper (which they also liked). We had a game plan for who was getting what. Everyone was happy (although I still wanted Mexican).

Our happiness peaked in the first five minutes because the rest of the meal was peppered with server mistake after server mistake. We were constantly waiting on refills, the server brought the wrong meal for the girls (and then she tried to fix it by disregarding what I had originally ordered and bringing us something else), items were missing, we had to repeatedly ask for certain condiments and sauces — it was just an unpleasant experience from the service end.

The food itself was good and the girls weren't really aware of all the mistakes, but my wife and I certainly were. And I noticed that the people at the table next to us were having problems with the same server (I overheard them discussing the final bill — the server eventually recognized her error).

When it was finally time to pay our bill, the server took my debit card, and returned with the bill for me to sign. She failed to come back with my card — par for the course.

Now it's tip time.

Let's pause for a minute so I can give some personal background. I've done more than my fair share of food-industry work — six restaurants, a country club, a grocery store, and a camp kitchen. I know what it's like to work for tips. I know what it's like to give good service (and occasionally bad).

I know what a good dining experience should be and how hard restaurant work can be. I also know how lucrative such work can be, considering the rather easy requirements for becoming a server. In fact, I think everyone should work in a restaurant so that they can have a better appreciation for servers.

Image by avlxyz via Flickr

And it's with this background that I nearly always tip at least 15%. But that night, I didn't. I couldn't. It was just so bad. And you know what? It felt good!

Why? Because I hate rewarding bad behavior with good things. Why should I reward that waitress's terrible service with a good tip? Wouldn't I just be reinforcing bad service? When my kids act up, they don't get good things — they get consequences. In school and in jobs, poor performance generally yields bad results. Just because I'm a Christian, should I feel obligated to tip higher because it might help my witness?

Now it's true (at least in the restaurants I've worked at) that servers don't like the Sunday lunch crowd — aka, the church crowd. Supposedly, tips are worse and guests aren't as nice as you'd think they'd be. It's possible this is the case, though I also think the quick influx of guests and increased number of kids makes it a more stressful shift. I'd be curious to see the actual breakdown of tip percentages as compared to other lunch shifts.

But back to our recent dining experience, my question is: Was I wrong? As a Christian, should I tip well regardless of how poor the service is? Perhaps the server saw us pray before we ate — so was not giving her at least 15% a bad witness? Or perhaps I should have said something or written a note explaining why I just couldn't give her a nice tip?

I know some people not like it that my family eats out weekly, but that's not what this post is about. I'm specifically interested in your thoughts on what you think our responsibility is, as Christians, on tipping. Is there any scripture to back up your viewpoint? As always, keep it civil! Thanks!

Posted by Matthew at 2:14 PM | Comments (3) | TrackBack
Category(s): Family Finances, Giving and Stewardship
Tag(s): budget, stewardship

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Do you need it — or just want it? [An UPDATED UPDATE]

About a year ago, I did a post regarding my family's progress in cutting the costs of digital services. Now, 12 months later, I thought I'd let you know how things have gone.

Text messages: First up was texting. I was looking into an app called textPlus that we could use instead of paying for a texting package via my cell provider. The way it works is that those you text have to be using textPlus as well.

Since I couldn't guarantee that those I text could/would also use textPlus (other than my accommodating wife), I decided not to pursue this app any further. So, no money saved.

Cable: I also mentioned that I had a billing error from the cable company and that it was finally resolved. So that saved a little bit of money. But I also decided that we could do MUCH better — i.e. pay nothing at all — by canceling cable altogether (again, with the support of my accommodating wife). Do What? That's right: go TV-less — no cable, no satellite, no digital antenna, no nothin.' (Remember how home-schooling used to sound weird, now people are doing it everywhere? That's what is happening with the growing ranks of those cutting the cable — who knows, someday, the weird ones could be those who have cable/satellite).

So how's the past year been with no signal? Mostly good, I'm glad to report. Now to be fair, we do have Netflix which can stream to our TV, so when we need a video-entertainment fix we can get one. But dropping cable has drastically reduced our watching. Our girls didn't watch that much before anyway, but even less now (though that may be partially due to the only TV being in the basement of our new house).

But dropping cable hasn't been without its downside — namely, the lack of live sports! We're big college basketball/football fans and we were able to watch only a handful of games on the computer. So the lack of access has generally meant missing games or going to a friends' house to watch (mostly the latter).

Fortunately, for March Madness, there was an iPhone/iPad app that played every game. But for much of the year, not having cable or satellite was a definite inconvenience on the sports front. (This also harmed the hospitality angle, since we couldn't invite friends over to our house to "watch the game." This was certainly an unintended consequence.)

Given the good (less time watching TV, spending less money), the bad (limited sports), and the ugly (departing from my wife and family for a couple hours to go watch games elsewhere), will we re-subscribe to cable? Not sure.

Probably the best thing would be to get a digital antenna and be able to catch most of the games via broadcast signals. This would be the most cost-efficient, and because there'd be so few channels available, it wouldn't dramatically increase the temptation to start watching a bunch of TV again — at least I don't think so. (You may have to wait a year for another Updated Update to find out what we decide.)

Phone: Now for the home phone. As you may recall we started using Ooma last spring (with the support of my accommodating wife, of course). For the uninitiated, Ooma is a device that connects to your high-speed Internet and your home phone and allows you to make calls with no monthly charges, although there is a ~$11 yearly FCC "pass-through" charge.

So how's it been? Pretty good.

At first, we had some stability issues. After talking with customer service a number of times, they overnighted us a new unit. The new unit hasn't had any stability issues — but that's not to say it's perfect. Depending on your data upload speeds from your ISP, you could experience a delay when talking on the phone.

For instance, our Ooma is connected to a router and when you combine the router with a meager 1.5mps upload speed, there's a delay in the time the person you're talking to hears what you've said. So this can be a little bit of an annoyance, but not to the point that it would make us want to go back to a full-fledged land line. Plus I have the ability to check messages at home from any computer with an Internet connection, as well as see call logs and a few other nifty features. And with both spouses having cellphones as backups, we see no reason to go back.

(Not unlike cable, someday people may think it's weird that people ever had landlines. We're just ahead of the weird curve — or behind it, not sure which).

One other thing, we haven't yet paired my wife's cellphone with Google Voice because we have plenty'o cellphone minutes and we can't get a smaller minute package. However, if the minutes start running low, we may pair her phone with the Ooma using Google Voice.

All in all, I'd say it's been a successful venture. How successful?

1) We've saved close to $1,000
2) We've spent far less time watching TV
3) Perhaps most importantly, it's helped me realize what an accommodating wife I have!

What about you? Saved any money over the past year on digital services? If so, how? If not, why not?

Posted by Matthew at 10:35 AM | Comments (4) | TrackBack
Category(s): Family Finances
Tag(s): budget, budgeting, family finances, money-saving tips

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Buying a car — new: Part 2

In my last post, Buying a car — new: Part 1, I confessed to doing something back in 2008 that I never expected to do: I bought a new (rather than used) car.

Nearly all the financial "experts" frown on such purchases because of the ridiculous amount of depreciation that occurs the second you drive it off the lot. That kind of financial logic is difficult to argue with. After all, I'm a "best-deals" kind of guy and rarely are new cars the best deals.

But, as I said in the post, "Our game plan was to have a bigger car by June [2009], to boost our level of retirement savings, to increase our giving in 2009, and to make my wife happy."

Still, some blog readers, uh, "took exception" to my decision. Here's what a few commenters had to say:

"Thank you Matthew, for taking the depreciation of a new vehicle for me. Let me know when you are ready to sell it in 3-4 years so I can pay next to nothing for it in cash. I know you said you'd 'likely' own it for 8 years, but your post lets me know that you are excellent at justifying. Let us know how the warranty works. Usually covers everything except for what needs fixing. I will refrain from name calling, but your purchase surely does go against the SMI principles I've been reading for many years."

"I don't think it is wrong that you bought a new car. The problem is the principles you broke. No they are not laws, but breaking Biblical principles has a way of not working out. First you took on debt in order to buy the new car. I know you are thinking your can earn more than 1.9%, but that probably did not work out last year if you were in stocks. And we all know that we can not reliably forecast what will happen this year. Secondly you are investing in your 401(k) without being out of debt. You are breaking the order of the 4 steps that SMI outlines."

"I'm sorry, but I feel you were a bad example for going into debt for a depreciating item. It goes against all the principles taught in your own newsletter and by Crown Financial Ministries. And it was not even for absolute necessity, as for some very poor people who buy something cheap just to get to work. The price of used cars also went way down."

Yeeeouch! Maybe "took exception" is understating it a bit. They filleted me. But that's okay. We invite healthy (even if heated) discussions on financial matters at SMI: "As iron sharpens iron, so one man sharpens another."

As I mentioned, that original post went up in 2009. So let's fast-forward a couple years: how'd it all work out? How did we do with our game plan?

• Boost to retirement savings – check. We were able to fully fund our Roth 401(k) here at work. And because we were investing during the bounce-back from a severe downturn, we did quite well. Upgrading was up 33.6% in 2009.
• Increased giving in 2009 – check. Years ago, my wife and I put into place a system to help us increase our giving each year. While tithing 10% is a good place to start, it is important to us for it not to be the final destination. While it's not always easy to increase our giving, we trust God to work things together for the good.
• Wife happy with new van – check. And if asked, I like it too. In fact, we like it 42,257 miles worth so far. This thing is a tool-box on wheels, making it much easier to do road trips with our three kids (fourth coming in August!), car-pooling to school, trips to the grocery and even occasional outings to Lowe's where I can take the seats out and hold quite a bit of lumber. Could we have done all this with a used car? Yes. But the peace of mind from the warranty does have its value (we haven't needed it yet by the way).

And so the million-dollar question: would we do it again?

Probably not — but not for the reasons you're thinking. It has nothing to do with the monthly payment (which we no longer have — we paid the car off in January 2011). It doesn't have to do with the lost depreciation, either. True to our plan, we intend to keep this car for quite some time. Nor does it have to do with newer models coming out making me wish we had waited.

What then? It's the dings. The scratches. The dents. I didn't realize how badly they'd hurt emotionally.

Our nice new van now has been through a couple of fender benders, car toppers falling on the side panel (that one was all me), scratches from purses and grocery carts, crayons ingrained into the floor, etc. And every time there's a new one, it still hurts.

When you buy a car used, it's already a little imperfect, so the new imperfections aren't as painful. But with this car, each one reminds me of what use to be our perfect, shiny, immaculate minivan. I have to say, I didn't see this coming.

So there you have it. And while we probably won't buy new again, I don't have regrets over buying this one new. It fit our game plan, lined up with our risk temperament, filled a need, and pleased my wife.

What about you? Ever bought new and then regretted it? Or maybe the opposite held true: you bought used and wish you bought new?

What will you do differently next time? Tell your tale.

Posted by Matthew at 10:55 AM | Comments (10) | TrackBack
Category(s): Family Finances
Tag(s): budget, christian financial, family finances

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Buying a car — new: Part 1

In this two-part piece, I'm going to first look back at a post I did in February 2009 regarding purchasing a new(!) car. In part 2, we'll fast-forward to where I am now in my thinking on buying cars new, rather than used. So let's rewind a couple years, shall we?

Okay, I did it. I admit it. I did something I publicly announced I wouldn't do, stopping just short of telling you to read my lips. I bought a car — new. Gasp! You did WHAT?

Let me clarify a few things. To be exact, I had earlier said, "I'm not likely to buy a car new" — "likely" being the operative word. And in the post in which I made that statement, I was talking about buying a car for me. But the new car is for my wife.

But I'm sure a few of you are griping about these technicalities. So what, pray tell, brought me to this seemingly un-SMI-like decision?

Background: Last March [i.e., March 2008], we added Gigi to our fold. That meant it was difficult for the five of us to go anywhere — two car seats, a teenager, and a 2004 Pathfinder do not mix. In fact, when we went on our annual family vacation, Jordan had to ride in a separate vehicle. My wife was not happy, therefore I was not to be happy.

Being a loving husband who valued his vacation time, I quickly promised a bigger vehicle by next vacation. And after some soul searching, my wife Kim relented to the idea of a minivan (she had been plagued by the anti-minivan virus, which apparently is a very real phenomenon that mom's deal with, battling what seems to them as a loss of soul and self).

Fast forward seven months and we had the perfect storm for car shoppers: a collapsing economy and year-end inventory. Dealers needed to deal.

But you're saying to yourself, "Just go find a 2-3 year old Honda Odyssey." That proved to be difficult — unless we were willing to sacrifice our whole wish list of options, color, and so forth.

I was able to further rationalize the decision with the 1.9% financing. While I had hoped to pay cash for the vehicle, I was stymied — mostly by my decision to contribute aggressively to a newly created 401(k) plan here at SMI. Furthermore, Honda was offering to extend the bumper-to-bumper warranty an extra five years for about $300/year, and if we never used the extra warranty, they promised to refund that money. We figured that we'd be "likely" to have the car for eight years, so that was a no-brainer for us.

Why spill the beans about my new car purchase when I know I'll likely disappoint a few of you? Admittedly, it's a little cathartic. And we try to be pretty forthright around here (I've had several people inquire).

But most importantly, SMI is always talking about having a game plan and sticking to it. Our game plan was to have a bigger car by June, to boost our level of retirement savings, to increase our giving in 2009, and to make my wife happy.

That was my thinking a little more than two years ago. Would I buy new if I had it to do again? I'll have the answer in Part 2.

Posted by Matthew at 3:20 PM | Comments (6) | TrackBack
Category(s): Family Finances
Tag(s): budget, christian financial, family finances

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How NOT to handle wills and inheritances?

I just read this fascinating piece on how one man structured his will nearly 100 years ago.

The article tells how early-20th-century multimillionaire timber baron Wellington Burt (pictured below) decided to go about leaving his fortune:

1) Ultimately, his money would be fully distributed to his family — but only 21 years after the death of his last surviving grandchild.

2) In the meantime his "favorite son" would get $30,000 a year but the rest of his children (and grandchildren) would get allowances roughly equal to those he gave his cook and chauffeur.

He did this under the guise of not "risk[ing] messing up his kids lives with a huge inheritance," according to a related article in The Wall Street Journal. But surely there was a better way — one that would strike a balance between the extremes of leaving a huge inheritance all at once and effectively skipping over two generations of his family.

Burt could have given all the children (except those who were clearly irresponsible) a reasonable amount yearly, perhaps requiring that they worked productively in the family business (or otherwise contributed productively to society). Or, in an effort to encourage generosity, he could have given them "x" dollars a year of which half had to be given to a charity. The options were limitless.

The WSJ article goes on to say, "Of course, skipping a generation is not unusual among rich parents who want to send a message to their kids (but somehow not their grandkids)." I think that's an interesting point, about the grandkids somehow escaping "the message."

Don't get me wrong, I don't have an issue with spreading out an inheritance to grand, great-grand, great-great grandchildren, and so on. And, obviously, I don't know all the details of Mr. Burt's situation. But it seems to me the whole process could have been set up in such a way as to stimulate generosity, hard work, and accountability.

I think that's the goal of these verses in the Book of Proverbs:

13:22 - A good man leaves an inheritance for his children’s children, but a sinner’s wealth is stored up for the righteous.

17:2 - A wise servant will rule over a disgraceful son, and will share the inheritance as one of the brothers.

20:21 - An inheritance quickly gained at the beginning will not be blessed at the end.

Had it been available, Wellington Burt would have surely benefited from Ron Blue's book Splitting Heirs: Giving Your Money and Things to Your Children Without Ruining Their Lives (maybe you would too?).

So let's suppose you have a multimillion dollar fortune to leave behind (or perhaps something much more modest): How would/will you structure it? If you have any "disgraceful" children (which I'm sure you don't, but apparently Mr. Burt did), would you omit them from your will? Do you like Mr. Burt's estate plan? What would you change about it?

Posted by Matthew at 10:05 AM | Comments (2) | TrackBack
Category(s): Family Finances, Retirement
Tag(s): estate planning, inheritances, wills

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How to use cash instead of credit and debit cards

My wife and I decided this would be the year we would transition from using a combination of credit cards and debit cards to primarily using cash. While we'll still use a rewards-based credit card for gasoline purchases (we're not going to spend more on gas just because we're using credit, so we might as well get rewards for that spending), we're otherwise moving to a cash approach.

We haven't finalized the plan just yet. Probably, we'll combine our cash spending with some kind of online accounts for certain budget categories, such as using ING "sub-accounts" or some version of PNC Virtual Wallet. (Having been avid debit card users for 11 years, I already gave Mvelopes a try, but didn't find it intuitive or helpful.)

So, I posed the following question over on our Facebook Page: Best advice for someone transitioning to the cash/envelope budgeting system?

Here are some of the responses I got:

• Find a method that works for you (we like MoneyWell), adjust your budget as needed (it can take a bit to fine-tune things), include some fun money, and be patient with yourself (trying and missing the mark is more progress than not trying).

• Start with the right envelopes. I don't think you want to get carried away with too many envelopes.... Cash works very well with those areas of your budget that are tough to control such as entertainment and grocery shopping. Perhaps try cash with those and use a debit card with the rest.

• We're thinking of trying it just for the areas I tend to overspend in.

• Make sure you have your spending categories finalized.... Get your envelopes together. You may find that most of your fixed expenses do not need to be part of the envelope system. We mainly use the cash system for food and miscellaneous.

So where are we in the process? We're no longer using the credit card except for gas (as noted above). Previously, we paid for most of our expenses via credit card (to earn cash rewards). But because we pay the balance down to zero each month, it felt like a huge bill hanging over our heads. Now it'll be much smaller and more palatable mentally and financially.

Next up we need to finalize our budget categories and their percentages/amounts. I've always found this calculator from Crown Financial Ministries to be a good starting place, so we'll likely use that.

After that, we'll need to devise our game plan: take out X dollars every Y weeks and divide it among these Z envelopes. Also, we need to decide who is making the withdrawal and who is carrying how much money and... logistics in other words.

I'll be back later in the year to report on our progress. At that time, we hope to be well-oiled machines — but as one commenter said, "be patient with yourself (trying and missing the mark is more progress than not trying)."

But we haven't got there yet, and that's where you come in. What have you tried that has worked and what hasn't? Any software or physical envelope systems you'd recommend? I'm all ears. Just post to the comments area below!

Posted by Matthew at 8:55 AM | Comments (28) | TrackBack
Category(s): Family Finances
Tag(s): budgeting, cash, envelope system, family finances

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There is hope!

Here's a quick story of how one couple conquered $83,000 of credit card debt.

Image by eric731 via Flickr

Not surprisingly, the key ingredients included cutting up the cards, learning to budget, and spend cash for everything.

But there was one other crucial piece — getting help from a credit counseling group that managed to negotiate their interest rates down from as high as 32% all the way down to 3%.

Obviously the best approach is to avoid getting into debt in the first place. But it's encouraging to read stories like this of how people have managed to dig themselves out. Not fun. But inspiring.

Have your own story? Tell us about it in the comments area.

Posted by Mark at 9:25 AM | Comments (2) | TrackBack
Category(s): Family Finances
Tag(s): beat debt, debt, debt-free, getting out of debt

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Cutting your monthly utility bill

Among the three main "operational cost" areas for most households — automotive, food, utilities — utility costs fall in the middle when it comes to being flexible (grocery costs are usually the easiest to reduce, while automotive costs tend to be the most difficult to cut).

In the latest issue of Sound Mind Investing, we look at several steps you can take to cut the cost of utilities. Here are a few ideas from that article (the full version is here), starting with suggestions for saving on electricity costs.

If you have a central heating and air system, now is an excellent time of year to make sure it's operating at peak efficiency — reduced efficiency translates into higher cost. Leaky ductwork, for example, can reduce efficiency up to 20%, according to the Alliance to Save Energy.

An inspection by a certified technician may cost $50 to $100, but those could be dollars well spent if the inspection results in lower AC bills throughout the summer.

Depending on where you live you may be able to get an inspection at no cost. Many power companies offer efficiency inspections as part of a free or low cost "energy audit." Such audits not only check for leaky ducts, but also for leaks around windows, doors, electrical outlets, chimneys, etc. Call your power company or check its website to find out if such a service is offered in your area.

The audit may show that some caulking and weather-stripping will significantly reduce air loss. Audit recommendations will likely include adding extra insulation in the attic (a total of 12-15 inches is recommended by the Department of Energy). Cost? Expect to pay 50¢-$2 a square foot, depending on local climate and type of materials. But you can recover up to $500 by means of a 2011 federal tax credit.

Additional ways to save on electricity — all of them low- or no-cost — are shown in the table below:

As with electricity, the only way to save on the monthly cost of water is to use less of it. Low-flow shower heads (cost: $10-$50) commonly reduce per-person water usage by hundreds of gallons a month. Low-flow heads take some getting used to, but remember you'll also be saving on electricity (or gas) costs, since you'll be using less hot water.

You may also want to investigate replacing your toilets. Many newer models use water more efficiently than older ones. Some even come equipped with dual flush modes, so you can choose between a less-water-intensive flush or a heavier flush.

Another way to conserve water is to fix leaks. That sounds obvious, but many people effectively wash money down the drain by putting off such simple chores as replacing a faucet washer or toilet flapper. A 50-cent washer and a $10-$15 toilet repair kit will pay for themselves almost right way, and will generate an annual "investment return" likely to outdistance any return you'll earn in the stock market.

Posted by Joseph at 2:25 PM | Comments (1) | TrackBack
Category(s): Family Finances
Tag(s): saving on electricity, utility costs

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My first year as a landlord

A year ago, my wife and I took advantage of the slumping housing market and bought a house at nearly 25% less than it sold for brand new just a few years before! (The person living there had a job transfer and his employer more or less owned the house, so we got an incredible deal.)

We decided not to sell the old residence because questions occurred to me: 1) Would we also take a huge hit when selling because of the depressed housing scene? 2) Would this be a good time to rent our old house?

Because I had wanted to try my hand at an investment property for some time (and because we were in a position to buy a new house without needing the equity from our old house), we decided to take the landlord plunge. We closed on our new house on March 30, 2010, and the tenants took up residence in our old house two days later on April 1.

So how has it been? Quite good actually, but that's not to say I won't do a few things differently when this tenant moves out eventually.

Here are my top four changes for the next time around:

1. I will represent myself as the property manager, not the property owner. I would like to keep a perception of separation between business and personal life. This is not to say I would lie if asked if I owned the property, but I would just refer to myself as the property manager.
2. I will not give an option for a multi-year lease. Since this was my first time as a landlord, it gave me some comfort to think the tenant would be there for several years and I wouldn't have to go through the process of finding a new tenant any time soon. In fact, in return for the multi-year lease, I discounted the rent.

   In hindsight (and because of advice from other real estate investors), I wouldn't do that again. I found out that most renters will stay longer than a year anyway, so by discounting the rent, I shortchanged myself. Plus if I ever had a difficult tenant (but one who was not actually violating the letter of the lease), I would have a tough time getting rid of him.

3. I will require that the renter hand over 12 post-dated checks for the rent up front. Rather than relying on the rent to be deposited (or mailed to me), I will require a years' worth of rent checks, each dated the 1st of the month, January through December. This puts the burden on me to make the deposit each month, but also serves notice to the tenant that he or she better have the funds in the bank.
4. I won't assume the rental property will result in a tax deduction. I had heard that one of the great things about rental properties is they provide great tax deductions if you itemize (or at least that's how I understood it). That may be true if you're not profitable, but I was. The rental income exceeded the expenses (repairs, mortgage, depreciation, miscellaneous). So at the end of the year, because it generated a gain (even though the gain was reduced by the expenses), my rental property increased by tax burden, rather than decrease it. (This year, I'll be sure to set aside a portion of the income for tax time in 2012!)

That's essentially it. I might add a few other smaller stipulations in the lease, but these four are the big ones.

My experience in year one has been positive overall. There have been a few small incidents, but the time it's taken me to resolve them has been well worth it. And in most months, I have spent no time at all on the rental, other than checking to make sure the rent was deposited. In other months, such as when I had to replace a faucet or do tree maintenance, I may have spent three to four hours.

Now just for fun, let's crunch some numbers to see what I'm "getting paid" to rent this house. (For simplicity sake, we won't include the income it generates — it's too hard to predict because some years will have more expenses than others, like when I may have to replace a roof or HVAC.)

All told, I probably have averaged about an hour a month on the rental. The mortgage has 24 years left. So 12 hours a year times 24 years is 288 hours. If the house appreciates at 4% year, it would be worth $550,000 when the mortgage is paid off. However, we lived there for seven years before we rented it, which gives us about $100,000 in equity. So what does this look like per hour?

($550,000 - $100,000)/288 = $1,562/hour

Not too shabby.

Posted by Matthew at 1:40 PM | Comments (4) | TrackBack
Category(s): Family Finances
Tag(s): landlord, mortgage, rental property

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Non-cash donations can save money come tax-time

We moved last year, and in our relocation process we gave away a lot of stuff: clothes, housewares, decor, and miscellaneous items. Never wanting to give the government more money than I have to, I'm always diligent about getting receipts, writing down items we've given, taking pictures, and so on. It's a little work, but as you'll soon see, well worth it.

The hardest part in the process is in determining fair market value for the items. I'm never too excited about doing this, but thanks to TurboTax's ItsDeductible, the process isn't as bad as it could be. ItsDeductible is the easiest and cheapest way I'm aware of to determine the market value. And it's free (they are hoping you'll then import the information when you file your taxes through TurboTax). So how does it work?

After logging in with your current TurboTax login info (or creating a free account), you can choose to track your current year's donations, add donations to the previous year, or adjust donations for an amended return from two years ago. I selected the second option.

From there, you are given four types of donations: Items | Money | Stock | Mileage.

I naturally selected "Items." After than you will add/select a charity name and the date of the donation. Then you look up the item you donated. This can be done via search box, or from a list of categories/sub-categories. I find it easier to do a search, then select the appropriate sub-category generated from the search.

Once you've located an item(s), you have the choice of quantity and value: High Value, Medium Value, and Low Value. (I'm have not idea why they include the low-value option; the Pension Protection Act of 2006 disallows tax deductions for any clothing and household items that are not in "good" used condition or better.)

Choosing the value is the hardest part as we don't typically record the exact condition of the item, so there is a judgment call involved. Since we don't give away items in poor condition, I'll usually put half of the items in High Value and half in Medium Value unless I can remember that item's exact condition. (Note to self: Next time, it would be helpful to put an H next to the High Value and an M next to the Medium Value items when then them down.)

Let's walk through an example:

Say you have some blankets you gave away. A search for the term "blanket" generates the following choices: Receiving Blankets, Bed Spreads, Blankets, Comforters, Duvet Covers, Quilts, and Quilt/Comforter. Since you just had a regular old blanket, you select "Blankets."

You're then taken to a few more choices, Electric and Non-Electric. And under each of those are even more options, from the size to the material. Since you remember that you gave away a really nice fleece blanket and a decent acrylic blanket, you put a "1" in the High Value box next to Fleece, and a "1" in the Medium Value box next to Acrylic.

Then you click "Add Items" and are taken to a summary screen showing what you've given so far and the value of it.

From there you can add more items or complete that donation. If you complete it, ItsDeductible shows a summary of all your donations and the estimated savings based on your tax bracket (which you selected in the sign-up process). You can also make edits from this screen, print individual donations, or be done with the donations.

If you're done, you're given a quick summary of all your donations, including any Cash, Stock, or Mileage donations you've entered, along with an option go to more-specific summaries that you can print. If you're not using TurboTax, you'll want to print the donations to include with your tax info.

It sounds like a lot of work, but it's not difficult, and you get faster with it as you do it more. I had it done in less than an hour. And it showed an estimated value of $2,193 worth of goods donated. Depending on your tax bracket, that's a savings of about $200-800... for an hour's worth of work! And that didn't include any Cash, Stock, or Mileage donations (and the miles to and from Goodwill can really add up).

So if you're not taking advantage of non-cash donations when you itemize your deductions, you're really doing yourself a disfavor — that is, unless, you make $200 or more an hour. In that case, hire someone to do it for you!

Posted by Matthew at 1:25 PM
Category(s): Family Finances, Taxes
Tag(s): family finances, money-saving tips, Personal Finance Friday, taxes

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Debt advice from the "Oracle of Omaha"

For the first Friday of each month, we invite a guest blogger to write our Personal Finance Friday feature. Today's guest writer is famed investor Warren Buffett!

Uh, perhaps we should explain that a bit more accurately. Once a year, Buffett — known as the "Oracle of Omaha" — issues a letter to the shareholders of his investment company, Nebraska-based Berkshire Hathaway. (For a list of the companies Berkshire Hathaway owns in whole or in part, go here.)

Buffet's latest letter (PDF) came out last weekend, and we thought we'd pass on a few of his comments about an important area of personal (and business) finance: debt.

So, here is our March 2011 SMI guest blogger (sort of) Warren Buffet!

Unquestionably, some people have become very rich through the use of borrowed money. However, that's also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious.

But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people.

Leverage, of course, can be lethal to businesses as well. Companies with large debts often assume that these obligations can be refinanced as they mature. That assumption is usually valid. Occasionally, though, either because of company-specific problems or a worldwide shortage of credit, maturities must actually be met by payment. For that, only cash will do the job.

Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that's all that is noticed. Even a short absence of credit can bring a company to its knees. In September 2008, in fact, its overnight disappearance in many sectors of the economy came dangerously close to bringing our entire country to its knees....

My grandfather's name was Ernest, and perhaps no man was more aptly named. No one worked for Ernest, even as a stock boy, without being shaped by the experience.

[Below] you can read a letter sent in 1939 by Ernest to his youngest son, my Uncle Fred. Similar letters went to his other four children.... Ernest never went to business school — he never in fact finished high school — but he understood the importance of liquidity as a condition for assured survival.

Over a period of a good many years I have known a great many people who at some time or other suffered in various ways simply because they did not have ready cash....

[E]veryone should have a reserve. I hope it never happens to you, but the chances are that some day you will need money and need it badly, and with this thought in view, I started a fund by placing $200.00 in an envelope, with your name on it, when you were married. Each year I added something to it, until there is now $1000.00 in the fund....

It is my wish that you place this envelope in your safety deposit box, and keep it for the purpose it was created for. Should the time come when you need part, I would suggest that you use as little as possible, and replace it as soon as possible.

You might feel that this should be invested and bring you an income. Forget it — the mental satisfaction of having $1000.00 laid away where you can put your hands on it, is worth more than what interest it might bring....

If in after years you feel this has been a good idea, you might repeat it with you own children.

That's our Personal Finance Friday post for this week. Have a great weekend!

Posted by Joseph at 1:25 PM | Comments (2) | TrackBack
Category(s): Family Finances
Tag(s): debt, personal finance blog, Personal Finance Friday

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Review: The Secret to a Successful Budget

A few months ago, Craig Ford, founder of Money Help for Christians, did a guest post for us titled "The best financial tool of them all." In this post, Craig talked about the importance of having a budget. He also makes mention of his e-book, The Secret to a Successful Budget. I recently took time to read it and would like to share some thoughts on this excellent resource.

First, a little background on Craig. Having worked in both youth ministry and pulpit preaching ministry, Craig is currently a missionary in Papua New Guinea with his wife and three children. He has attended Rochester College, York College, Abilene Christian College, and Harding University Graduate School of Religion, and he holds an AA, BA, and a Masters of Divinity degree, all in the field of Biblical Studies.

Oh, and he's debt free (mortgage excluded).

What I first noticed about his e-book was how professionally it was done. From the table of contents to the use of images, formatting, grammar, it all has a top-notch feel. This isn't always the case with self-published e-books.

After the introduction, Craig details what he calls "The Menu for Financial Health." This is his creative way to approach a financial plan. On his menu, he has listed (among other things):

• Beverage — Give Generously
• Soup — Pay off all debt with an interest rate above 6%
• Salad — Save 3-6 months worth of living expenses
• Dessert — Save for major future purchases

I found this to be a great outlook on finances and should appeal to many who haven't been persuaded by other financial plans.

After this, Craig talks briefly about "Financial Focus Points — The FFP is where you send all the dollars your budget helps you create. For example, if you are trying to get out of debt, that is your FFP."

From here, we move into the nuts and bolts of the e-book, and that's defining a budget, working with a budget, creating a budget, budgeting methods, budgeting tips, and budgeting questions.

One of the things I appreciate about his writing is that while he does it with honesty, he does it without beating you up over things. For instance, he writes:

The question we must each ask ourselves is — when budgeting gets hard, will I quit?

If you respond to the difficulty of trying to get control of your finances by avoiding any period of discomfort, then this budgeting system won't work for you. My best advice would be to email mhforc@gmail.com and ask for a refund. However, if you are willing to endure a season of discomfort, adjustment, and transition, then you'll really enjoy the rewards.

I love that kind of gentle candor.

Another thing I appreciate is the lack of rigidity. Craig doesn't claim to have all the answers, nor does he say there is only one right way and it never changes. In fact, he says quite the opposite when he mentions, "Budgeting is a process, not an event... There is no such thing as a perfect budget." I believe this kind of perspective makes the book more accessible and easier to digest.

Craig has also sprinkled in personal stories, Bible illustrations, analogies, and tips throughout the book. One of my favorites is on page 42 when talking about how to decide what to cut from the budget, he says:

When we buy things, we don't just spend money. We spend our time. When deciding what stays and what goes, you should ask: do I want "x" number of hours of my life to be used on buying this item?

But my favorite aspect of the book is that when reading it, you can really hear his heart — that as Christians, God is an essential reference point in how we spend our money. This is evident in how he suggests giving back to the Lord (generously, extravagantly, from the firstfruits and the leftover), as well as in his closing prayer:

I pray that you might commit everything you do to God in prayer. Ultimately, budgeting is not about you. It's not about putting another dollar into a bank. It's not about saving every penny you have. It's about doing what God would want you to do with your money.

In closing, I found The Secret to a Successful Budget a pleasure to read. Craig has a thorough, well-written resource to offer Christians struggling in mastering their budget. So if yours is non-existent or in need of some direction, I think Craig could provide you both the encouragement and motivation you've been needing.

Posted by Matthew at 2:55 PM | Comments (0) | TrackBack
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Tag(s): budget, family finances, money-saving tips

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Life insurance isn't the only way to provide for your family

This month, our Personal Finance Friday guest blogger is a long-time friend of Sound Mind Investing, Mike Cave. Mike has more than 30 years of professional experience in financial planning and insurance, and he is also a Registered Investment Adviser.

For a number of years, Mike has been our go-to guy for articles on insurance topics in the SMI newsletter.

In addition, SMI founder Austin Pryor and others on our staff have used Mike's "Life Insurance Checkup" service for help in making choices about how much insurance is necessary (for example, see the June 2009 article: How I Saved a Ton of Money on Life Insurance.)

Below, Mike tackles an important question: Is buying lots of life insurance the best way to provide for your family?

A good husband and father wants to care for his family. That's a given. But what is the best way to do that? Should he:

A) Buy more life insurance, or
B) Spend that same money to build an emergency fund, accelerate payments on a mortgage, or fund a Roth IRA?

We frail mortals are often more fear-driven and emotional than we would like to think. In the area of insurance, this often leads to overbuying — such as buying a $1 million policy when $500,000 would do. Or buying $500,000 when only $250,000 is needed.

Sometimes, as suggested above, such purchases may be motivated by the noble intentions of a husband. Or the overbuying might be related to anxiety on the part of a wife. Or it may be driven by the oft-repeated rule of thumb: "Buy 8-10 times your salary in life insurance."

Typically, those who make life insurance purchases do so without considering their overall financial picture. That picture may include other survivorship benefits, such as a death benefit under a pension plan. And, of course, there are Social Security Survivor's benefits.

Often, insurance agents (whose compensation is a percentage of premium collected) fail to explain to clients how much they are insured already (through other benefits). Nor do they explain how unlikely a client is to get a return on his or her premium dollar. And it is a rare agent indeed who will explain how those dollars could be better deployed to build long-term financial stability.

The paradox of overbuying is that, while having lots of life insurance creates an illusion of financial security, in most cases overlarge insurance purchases don't help the family. Indeed, more than 95% of 10-, 15-, and 20-year term policies expire before the insured does. They are paid for, the policy term ends, and the policy ends up in the trash can. It's somewhat like playing the lottery: for most people, it's a very bad bet.

This is not to say there isn't a genuine need for life insurance. To be sure, actuarial tables tell us that a man's wife is likely to become his widow eventually. On average, the life span of a man is five years shorter than that of a woman. And since wives are often slightly younger than their husbands, many women are likely to live quite a few years as widows.

The question is: what is the best way to address this financial need?

Ironically it's not through buying increased amounts of term life insurance. Look at some simple probabilities:

What's the source of these numbers?

• Let's assume a $500k 20-year level-premium term policy for a 40-year-old costs $375/year for 20 years — totaling $7,500. Most consumers who buy such a policy will receive nothing. Out of 1,000 insureds, there may be only 15 deaths over a 20-year period. It is this small likelihood that accounts for the low average return on premium dollars.
• An emergency fund doesn't earn much at today's rates, so you essentially get out what you pay in, perhaps a bit more or less, depending on interest rates and inflation.
• A typical mortgage rate, after the tax deduction, costs about 4% compounded for 20 years.
• The Roth IRA numbers shown above assume a 10% return — close to the average market return over time. (Actually, 10% is quite low compared to SMI's historic Sector Rotation return, which is more than 17% annualized since 1990. Admittedly, Sector Rotation is a more volatile approach that using Just-the-Basics, Fund Upgrading, or investing in either of the Sound Mind Investing mutual funds, SMIFX or SMILX.)

Here is what I'm getting at: if you were to pay just $50/month for term insurance rather than $100/month and put the difference in one of these alternatives, the result would be 50 to 150 times more likely to benefit your family (based on the numbers in the table above). Expressing it another way, an alternative approach would likely benefit them 50 to 150 times more!

Example: Suppose a 50-year-old husband, after a careful assessment of his "should-I-die-today" scenario, could save $50/month in premiums, either by reducing his death benefit or finding a less-expensive policy that has the same benefit.

Compounding $50/month savings at 10% annually for 20 years (which would yield about $38,000), and then compounding that total for 10 more years without further premium contribution (these 10 additional years put him closer to normal life expectancy) equals $103,000 in a Roth IRA for his wife's (or his) ultimate use, versus a term policy in the trash can.

Which do you think would be more beneficial to his future widow?

Thanks, Mike.

As noted above, Mike's fee-only (i.e., no policies sold) Life Insurance Checkup helps people "right size" their insurance coverage, so they can lower costs and deploy their dollars more effectively.

You can learn more at CaveFinancial.com.

Well, that's our Personal Financial Friday post for this week. Have a great weekend!

Posted by Joseph at 11:55 AM | Comments (0) | TrackBack
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Tag(s): life insurance, Personal Finance Friday

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Wise saving vs. unhealthy hoarding: where's the balance?

For today's Personal Finance Friday post, we present an excerpt from the new edition of Craig Ford's e-book, The Bible and 21st Century Finances: Thought-Provoking Answers to Nine Common Questions. (Between now and Feb. 8, you can download a free copy — we'll tell you how in a moment.)

Craig is the founder of MoneyHelpForChristians.com, a site that promotes "a frugal, simple, debt-free, and generous lifestyle so Christians can faithfully maximize their resources by putting them at the disposal of God’s Kingdom." He is also a missionary in Papua New Guinea.

In this excerpt from Craig's book, adapted for this blog post, he looks at finding the right balance between saving (which the Bible encourages) and hoarding (which it doesn't).

All of us find ourselves somewhere on the money spectrum below. We squander, save, or hoard money.

But you'll note there are no vertical lines marking the boundaries where the extremes begin. For example, there is no line marking the place where saving ends and hoarding begins. As a commenter to my blog asked, "What is hoarding and what is just shrewd financial management?"

This answer may frustrate you, but there is, quite simply, no final, definitive, or standardized way to answer that question.

However, let me suggest four keys that may help you find the balance between saving and hoarding in your own life.

1. Remember, you are not God's standard. "Why do you see the speck that is in your brother’s eye, but don’t consider the beam that is in your own eye?" (Matthew 7:3)

Yes, it is important that Christians hold each other accountable in our actions. But accountability can cross a fine line and become judgmentalism. That is a dangerous line to cross. Your job isn't to monitor the saving habits of others, but to be a faithful steward with what you have been entrusted.

Your particular financial situation is not God's standard. In other words, you cannot say that if someone has more stuff than you they are hoarding. Nor can you say that if someone has less than you they must be squandering their money.

The decision about how much to save (as well as to spend and to give) is one of proportion — proportionate to your income, proportionate to your call, proportionate to your faith, proportionate to your joy, and proportionate to your giftedness.

2. Recognize your God-given limitations. Speaking in reference to third-world missions, missiologist Paul Hiebert wrote, "There are limits to our ability to identify with another culture…. We must identify as closely as we can...but not at the expense of our sanity and ministry."

Taking this principle into the financial area, we all have limitations about what we can do. Some families save money by staying at home and never eating out. They love the experience of preparing meals at home. Other families may eat out often because they strongly dislike preparing meals. Is one family more "spiritual" than another? Absolutely not.

We all need to stretch and grow, but at the same time, we need to recognize that God hasn't created us all alike. We all spend money on certain categories that others would consider extravagant.

3. Consider what gives you joy. I think the key to the question of the right saving balance revolves around this very important word: joy. Consider two believers in very different spheres.

Mother Teresa, by all accounts, was an amazing woman. Though living in the slums of Calcutta, she lived life with joy. Her poverty wasn't a burden. She answered her call, recognized her passions, and lived a life that completely overflowed with joy.

Dave Ramsey, on the other hand, is a financially successful man who is passionate about helping other people build wealth. He recognizes that his wealth is a blessing from God. He also recognizes his passions and lives a life that is, in his own words, "better than I deserve."

4. Check your motives. You might have unhealthy reasons for saving. You might save out of fear or greed. This leads to hoarding. Ultimately, your motivations dramatically impact the end result. Saving becomes hoarding when you do it out of unhealthy motivations.

Remember, saving and giving should always be practiced at the same time. Those who save and do not give exemplify the traits of a hoarder. Saving in excess is a sign of greed, lack of trust, and a love of money (see Luke 12:13-21).

For a free download (through Feb. 8) of Craig's e-book, The Bible and 21st Century Finances: Thought-Provoking Answers to Nine Common Questions, go here for details.

Next Friday: more ideas for making the most of what you have. Have a great weekend!

Posted by Joseph at 1:55 PM | Comments (0) | TrackBack
Category(s): Christian Interest, Family Finances
Tag(s): hoarding, savings

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In 2011, resolve to save

Building a savings reserve is one of the best things you can do for your long-term financial health. And the beginning of a new year is a great time to get started — or to start saving more than you have been.

The easiest way to save steadily is to have some of your income set aside automatically before you have the opportunity to spend it!

Here are two paths to automated savings, plus ideas about how much to save, as discussed in chapter 5 of The Sound Mind Investing Handbook (5th ed.):

Sign up to have part of your paycheck (you decide how much) automatically deposited into a savings account at a credit union or local bank. It's easy, convenient, and offers useful discipline. Plus, your savings are insured and available for withdrawal without penalty whenever you wish.

For a slightly higher rate of return, set up an automatic monthly transfer from your checking account to a money-market account at an online bank.

How much should you save? If you're still in your 20s, set a target of saving 5%–10% of your income. Initially, this will go toward building your contingency fund. Once that's in place, your savings can be used for a down payment on a house and other large purchases.

In your 30s and 40s, move up to a savings rate of 10%–15% of your income. Usually at this age, the primary use of savings will be to invest for retirement.

Many people think they could never save 10% of their income! But what would happen if a cutback at work resulted in fewer hours and a 10% reduction in your income? Wouldn't you make the necessary adjustments in your spending so you could still cover the basics?

Juicing your savings in 2011 has been made easier by the tax-compromise bill signed into law a few weeks ago. All else being equal, a temporary cut in the Social Security tax will mean a 2% increase in your pay. To be sure, 2% isn't a lot, but it'll aid you in reaching the 10% goal.

And by running a few calculations, you may be able to hike your take-home pay even more, giving your savings even more of a boost.

So if you need to save more, there's no better time than right now.

Posted by Joseph at 3:05 PM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): savings, savings strategies

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Shopping tips for Black Friday

Wow! Another Christmas is just around the corner. How have you done thus far on your spending plan for 2010? If not great, don't lose heart, today's a new day. And for those who've done wonderfully, there's always room for improvement... especially around the holidays.

And with one of the busiest shopping days of the year upon us, I wanted to remind you of a series of posts we did last year entitled, The Ghost of Christmas Budgets Past, Present and Future.

In The Ghost of Christmas Budgets Past, I encouraged you to embrace your families' creative giving traditions while keeping the cost of past homemade gifts in mind: "So in your efforts to keep spending down this year, embrace the ghosts of Christmas budgets past. Listen to them and learn what you're getting yourself into."

Then in The Ghost of Christmas Budgets Present, I was merely checking in to see how things were going, providing a little accountability in your spending decisions. I also asked members of our paid site for some tips.

Here's what a couple of them wrote:

One thing we did years ago was to decide that we should put more emphasis on individual birthdays than Christmas. That cut down the amount we budgeted for just one event. I think it made the individual attention that each of our 4 children got on their birthday more meaningful.

The second decision we made was that whatever we budgeted to spend on ourselves, we would budget the same amount to give to other ministries. Human nature being what it is, this went a long way toward keeping our splurges to a minimum.  —   Bob

We've always created a budget for Christmas, right down to the annual Christmas DVD we add to our collection each year, or postage for Christmas cards. We also budget an extra margin of around 10% — which comes in handy when the gift my mother-in-law would really love is $5 to $10 more than I budgeted and I can't find it on sale...

I want to recommend a site that's helped me keep Christmas organized and sane for several years now. It's called www.organizedChristmas.com. I made a binder with master copies of forms I use every year, such as master gift list, family wardrobe check, menu planner, etc. There's a master calendar with "countdown" weeks, so you can be totally done early in December and just enjoy the season. Checklists, too! Everything is free for the printing, and the website owner (now retired) is Christian, so many of the articles speak right to the heart of Christmas and are great for re-reading year after year.  —   Cate

And finally, in The Ghost of Christmas Budgets Future I mentioned some ideas for future Christmases:

As for me, next year I'll do a better job of looking at sites like dealnews.com (slogan: "Where every day is Black Friday") before I go out shopping. But I have to say, using these online saving tips paid off...

I'll also continue to use cell phone apps like have ShopSavvy which kept me from overpaying on more than one occasion. With ShopSavvy, you simply take a picture of a product bar code with your phone's camera, and within a few seconds you're shown a list of the best local and internet prices for that item.

And perhaps next year, I'll focus our September-November shopping on the non-toy presents. According to Dan de Grandpre, founder and chief executive of dealnews, the best time to buy toys is at least two weeks after Black Friday (or about two weeks before Christmas) when retailers, such as Toys 'R' Us, Wal-Mart and Amazon.com, slash prices to clear out unsold inventory.

So there you have it, some friendly reminders on how to stay in the black on Black Friday.

Posted by Matthew at 4:55 PM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): black friday, budget, family finances, money-saving tips, Personal Finance Friday

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Personal savings — plus God's special provision

At Sound Mind Investing, we eat a lot of our own cooking. In other words, we actually do the things that we suggest to our readers!

Case in point: I wrote a piece a few months ago on the wisdom of having multiple savings accounts, with each account each earmarked for a specific purpose.

Here's a snippet from that article (subscribers' link), which appeared in the June issue of the SMI newsletter:

If all of us kept excellent records...there wouldn't be any need for [multiple,] dedicated accounts. You would know, for example, that $356 in your general savings account is earmarked for new curtains and $1,442 is for getting your driveway fixed.

But human nature being what it is, our record-keeping is sometimes haphazard and our "mental accounting" can get fuzzy. "How much of this money is for the next tuition bill and how much is for a new washer/dryer?"

So in the real world, a dedicated savings account is helpful. Indeed, multiple accounts — each with its own targeted purpose — can be even better....

At first, this sounds like a paperwork headache — and not too many years ago it would have been. But in these days of online savings accounts that link to your checking account, setting up multiple accumulation funds is a relatively simple matter. Furthermore, money can be transferred to each targeted fund (from your checking account) at pre-scheduled times.

Around the time I was working on that article, I had a problem with my heating and air conditioning system. Thankfully, the repair turned out to be minor, but the repair guy (who is also a friend) said something like, "Systems like this are usually good for about 15 years. How old is your house?"

"Uh, 15 years," I said, realizing the implication.

I priced what it would cost to replace the heating/cooling system, and a few days later set up a dedicated savings account. For the past six months or so, my wife and I have been diligently putting away money for the day when the HVAC system finally went ker-plunk.

Last week, it happened. Sure, I wish we had been able to save for another year before the system died, but I'm grateful we had a six-month head start. As it turned out, the money we had saved in our "heating/cooling fund" plus the $1,500 tax credit available (through Dec. 31) for energy upgrades brought us to about more than half the cost of replacement.

I had to dip into other savings to pay the rest of the amount, but guess what? Literally moments before I sat down to write the check, my eldest son sent me an online message: he had just been awarded a scholarship for his overseas study next year!

Remarkably, the scholarship amount was very close to the amount I had to take from other savings to pay the balance on the new heating/AC system. In other words, at the very time I had an expense I wasn't entirely prepared for, I got word that another big expense that is still a few months down the road won't be as large as I anticipated.

So here's what I learned: thinking ahead and saving in a dedicated account for future needs is a good thing indeed. Doing so with our heating/cooling need prompted us to keep saving, even though we weren't sure about the timing of when the system would go bad.

But I also was reminded that when you do your best to be a good steward by planning ahead and yet you still come up short, God often acts to make up the difference. This certainly isn't the first time I have witnessed His just-in-time provision.

When we get together with extended family next week for Thanksgiving, my wife and I will have a good story to tell about the wisdom of saving — and about the faithfulness of God.

I discussed the practicalities and benefits of multiple savings accounts in an interview earlier this year on The Meeting House on Alabama's Faith Radio. You can hear that conversation, with host Bob Crittenden, below.

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Category(s): Family Finances
Tag(s): God's provision, Personal Finance Friday, radio, savings

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Financial ideas for the holidays

Wow, it's already almost mid-November, so today on SMI's Personal Finance Friday, we're offering a round-up of ideas for saving, getting, and giving during the upcoming Christmas season.

First up: Saving with free shipping. Wal-Mart has rolled out a special free shipping offer for items purchased online (through Dec. 20). But, as the Wall Street Journal notes (subscribers' link), "the splashy promotion applies only to a fraction of Wal-Mart's items, meaning that consumers might still get a better deal shopping at other sites."

[The promotion] includes all electronics minus Apple Inc.'s iPads and iPods, but only limited items in categories such as toys, appliances and furniture.

Wal-Mart estimated it applied to roughly a fourth of the merchandise it sells via its website.

Target will be offering free shipping from Nov. 21 to Dec. 11 on more than 800,000 items (orders of at least $50). Amazon, of course, already includes free shipping on many orders over $25.

Next: Getting via reward points. SmartMoney offers a primer on how to pile up reward points in the next few weeks.

This holiday season, stores and credit-card issuers have rolled out temporary reward bonus programs that, in concert, can generate meaningful savings.

Some credit-card companies have increased their cash back or rewards points bonuses; some stores have increased the benefits of their loyalty programs by threefold; and more consumers are shopping via popular rewards portals (like an online shopping mall) to earn even more rewards. Combined, that can mean big savings.

And: Giving — the gift of stock. SmartMoney looks at the increasingly popular idea of giving kids and teens a share of stock, complete with certificate.

Giving stocks to children for the holidays is up roughly 20% from this time last year, says Rick Roman, co-owner of GiveAshare.com, which specializes in stock gifting....And yes, when it comes to giving stock, the holiday shopping season has already started: If you want a certificate to present, it’s best to order it by Nov. 15 to guarantee pre-holiday delivery of the actual certificate.

Not that an adult investor with an online account might have noticed, but stock certificates have become pretty cool. The mostly black-and-white certificates your parents collected decades ago have given way to colorful stock certificates from kid-friendly companies....

In addition to the standard info — number of shares purchased and the date — shares of Walt Disney Co. have pictures of Mickey Mouse, DreamWorks features Shrek, and Build-A-Bear Workshop is illustrated with stuffed animals. And there are more mature options like Nike, whose certificate features the Greek goddess for victory along with the company’s iconic swoosh logo.

Speaking of the Christmas holidays, we want find out some of your ideas and traditions related to Christmas gift-giving so we can include 'em in a future post! Details here.

Have a great autumn weekend!

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Tag(s): Personal Finance Friday

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"You write the post: Christmas Giving Traditions"

We're going to do something a little different, something I can't recall ever doing before, something most blog publishers dare not do — we're going to let our readers write an upcoming post...sort of.

We are going to put forth a topic and then take your feedback and make a post out of it. Sounds fun, right? So in the spirit of last week's election, let your voice be heard... POWER TO THE PEOPLE!

Our inaugural post topic: Christmas gifts!

• How do you approach giving Christmas presents to your children?
• Do you set a limit on the number of presents, the cost, or both?

• Do the kids know about these limits?
• Maybe you draw names?
• Do you make an effort to tie in gift-giving to the message of Christ's birth?
• Do you even give presents?
• What kind of traditions do you have that you feel really have a positive impact?
• What have you done in the past that you've discontinued because you found it unhelpful?
• What kind of things did your parents do that you really appreciated?

Pick out a few of the questions above and give us your answers on our Facebook's Note Page.

Consider your input to be the first gift you've given this Christmas. We'll receive it with joy — and put it to use!

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Category(s): Family Finances
Tag(s): budget, money-saving tips

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The best financial tool of them all

Once a month, we invite a guest blogger to write our Personal Financial Friday post. Today we're pleased to introduce you to Craig Ford, founder of MoneyHelpForChristians.com, a site that promotes "a frugal, simple, debt-free, and generous lifestyle so Christians can faithfully maximize their resources by putting them at the disposal of God’s Kingdom."

Craig is also the author of the e-book, The Secret to a Successful Budget (more about that below).

One thing of particular interest about Craig is that he is a missionary, currently living in Papua New Guinea. So, we take you now to the Southwest Pacific and Craig Ford!

If you're a regular Sound Mind Investing reader, you probably are already aware of the four financial "levels":

• Level 1 – Get Debt-Free
• Level 2 – Save for Future Needs
• Level 3 – Invest Your Surplus
• Level 4 – Diversify for Safety

In some ways, each new level requires a new body of knowledge and set of skills. What you need to know to get out of debt is different than what you need to know to wisely invest your surplus.

But no matter where you are in your financial journey, there's one tool that can help you keep financially healthy. It's the best financial tool of them all.

Are you ready for this? I call it — a budget. Yep, some folks try to be more subtle and give it a different name, but I’m gonna call it like I see it: it's a budget.

But a budget doesn't have to be the same for everyone. Too often, books on budgeting focus on numbers, techniques, and math. But what's essential is finding something that works for you, whether it aligns with anyone else's budget technique or not.

It really doesn't matter whether your system is low-tech or high-tech. All that really matters is that you come up with a system that:

• helps you intentionally spend your hard-earned income;
• helps you make informed spending decisions;
• provides accountability for spending;
• serves as a concrete reflection of your true priorities; and
• helps you achieve your financial goals.

The goal of the budget is to help you spend less than you earn. If you have a money management system that accomplishes that, then it is an effective budget.

Because each person is different, I wrote a book on on budgeting (details below) that doesn't try to force everyone into a budgeting mold. Instead, I offer various ideas for systems that fit different personality types.

Whatever system you develop, here are three things to keep in mind as you get started on a budget:

1. Budgeting is a process, not an event. You won't wake up tomorrow with a highly effective budget. It takes time to get better.
2. There is no such thing as a failed budget. There are simply ample opportunities to improve! When you make a budgeting mistake, just make the necessary adjustments and keep on budgeting.
3. There is no such thing as a perfect budget. Make it your goal to have an effective budget, not a perfect budget.

So stop thinking about budgeting as drudgery and get out of your mind that it has to look a certain way. Instead, focus on the positives of having a workable plan.

I believe personal finance is really about managing life, not money, so on the cover of my book, I put a picture of my daughter and me on a beach at the Gold Coast of Australia (that's southeast of where we live in Papua New Guinea). This picture reminds me why I budget. It reminds me that budgeting is not about saying "No." It's about choosing when to say "Yes."

Budgeting isn't an end in itself. It is simply an effective tool to help you use money wisely and make the most of what has God entrusted to you — all along life's financial journey.

If you're interested in learning more about Craig's book, click here. Craig's offering a 30% discount (good through Nov. 12) for SMI readers. Just enter the coupon code “SMIblog” at checkout.

Craig also has an article in the current issue of the Sound Mind Investing newsletter: "Five Spiritually Unhealthy Motives for Building up Savings."

Next Friday: more ideas for making the most of what you have. Spend wisely — and have a great weekend!

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Tag(s): budget, Personal Finance Friday

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Personal-finance roundup

It's SMI's Personal Finance Friday, and today I'm bringing you a smorgasbord of articles to get your financial juices flowing.

Fitness Deals to Beat the New Year Rush: "It's true that you won't see splashy promotions right now, because most gyms wait to publicize big promotions until the New Year's resolution rush. But if you walk in and ask, you'll find they're very willing to give a discount to get you in the door..."

When a Child 'Forgets' to Give You Change: "Levi needed a cash infusion for a school activity the other morning, and I instinctively dug into my pocket.

"'Dad, I need $40 for my new cross-country jersey and stuff,' he said. I fished out a fifty to pass over to him. He could give me the $10 change later.

"Whoa, just a second, I thought. 'Whatever happened to the change for the 30 bucks I gave you back in August?' I demanded.

"'What $30?' he responded..."

The Mall Goes High-Tech: "Back in August, the big retailer Gap decided to go where few large retailers have gone before — using a popular discount Web site to hold a nationwide sale. Shoppers had 24 hours to go online at Groupon.com and buy half-price shopping vouchers good for everything from jeans to trendy messenger bags.... [B]y day's end, almost 450,000 potential customers had bought into the deal.

"It's the new paradox for the American shopper: Just when buying online has become second nature for most consumers, retailers are shaking up the way they sell, now increasingly using the Internet to lure them back to Main Street or the mall."

Goodbye to All That Penny-Pinching: "The challenge for us lies not in knowing what to do, but in doing it. Despite our current economic travails, we live in a society of great wealth. Every time we drive past a shopping center or flip on the television, we are confronted with all the great products we don't own but could.

"Even for those inclined to be cheap, it's not so simple.... So, rather than providing helpful tips in my previous columns, I've used the space often to examine those two great forces that make us spend more than we should: seduction and compromise."

Future-Proof Your Phone's Data Plan: "Following AT&T's lead, both Verizon Wireless and T-Mobile are expected to unveil new cell phone data plans this week, offering lower prices for customers willing to give up their unlimited data plans. But the $15 savings might not be worth it — and if you switch, there could be no going back."

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Tag(s): budget, family finances, money-saving tips, Personal Finance Friday

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A couple more tools that could help you save money

In our never-ending quest to equip you with tools and resources for better financial decision making, I'm back with two more. Now bear with me on these two, as they may not be as obvious in their money-saving potential.

The first up is Dropbox, a file-hosting service that lets you store files across the internet using file synchronization. They offer free storage of up 2 gigs, 50 gigs for $9.99/month, and 100 gigs for $19.99/month.

The setup is ridiculously easy: sign up and then install the Dropbox sync client on any computer (PC, Mac, or Linux) from which you'd like to be able to access the files. That's essentially it. Have a file you think you might want to access from both home and work? Just put it in in your Dropbox folder.

Dropbox also has apps for the iPhone, iPad, Android and Blackberry platforms. This came in handy the other day when I wanted to listen to a sermon I had put it in my Dropbox at work. I pulled out my phone and tapped the file. Within seconds, Andy Stanely was giving another brilliant sermon.

So how does Dropbox save money? For starters, remote-control software services such as GoToMyPC are overkill for my needs. I have the free (2 gig) Dropbox account and am currently using only 3% of my total capacity. So rather than paying GoToMyPC $20/month, I'm paying nothing. Secondly, it keeps me from having to burn files to portable media, saving me the time and money of doing so. Furthermore, since the files are synced, I can always know that I'm working with the most recently updated file (if you've ever saved an older file over a newer one, you know the frustration of having to redo it — and, as they say, time is money).

Dropbox is a dead-simple, practical service that's worth trying if you have file sharing needs.

Next up is PayPal. Now PayPal is really without peer for web-based payments and money transfers. I mean sure, Google Checkout lets you pay for things, but it's hardly as ubiquitous or robust.

PayPal has had apps for the iPhone, Android, and Blackberry platforms for a while. You could use these apps to send money to people, donate to a charity, or look at past transactions. But now iPhone users can deposit checks by taking a picture. Pretty wild. Simply snap a picture of a check via the PayPal app and the funds will be transmitted to your account within seven days.

Of course, banks such as USAA and Chase also allow you to do this kind of thing — provided you have an account with them. But PayPal's 226 million accounts makes its reach and accessibility vastly superior.

So how does this save you money? No more driving to the bank to make the deposit, a time and money waster. I didn't say it was gonna save you a ton of money, but every little bit adds up. And let's be honest... it's just really cool too.

That's our Personal Finance Friday for this week. Spend wisely — and have a great weekend!

Posted by Matthew at 12:05 PM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): family finances, money-saving tips, Personal Finance Friday

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Long-term-care premiums set to soar

The Wall Street Journal reports that several large providers of long-term-care insurance policies have sought permission from state regulators to raise premiums on existing policyholders by 10%-40%. Some of these companies stopped selling new policies several years ago, recognizing that the numbers just weren't adding up.

Now, regulators are in the uncomfortable situation of trying to arbitrate between the lesser of two evils: raising premiums on strapped policyholders, or taking the risk that inadequate premiums are going to leave insurers without the means to pay claims decades down the road.

For those stuck with a large premium increase, the article advises against canceling the policy:

Faced with steep rate increases, many people will want to drop their coverage. But that step is "usually one of the worst things policyholders can do," says Gary Cotter, a financial planner at Cotter Financial LLC in Sun City Center, Fla. After all, those who walk away from a policy "have paid all this money and get nothing back."

In deciding the best course of action, you should first consider factors including your financial resources, age, health and need for other forms of insurance coverage. If you want to retain your current level of coverage but are too strapped to pay a higher premium, some advisers recommend asking one or more heirs to help out. Each heir can give any one person up to $13,000 this year free of gift tax.

Policyholders can ask their carrier to modify their coverage to bring premiums down. For example, carriers may allow policyholders to reduce the daily or monthly costs covered by policies — say, to $150 a day from $200. Or, they can expand the "elimination period," the number of days the policyholder must pick up the tab before benefits kick in — say, to 90 days from 30 days.

It's often uncomfortable for families to talk openly about financial issues, but this is one case where it really can make a big difference. It's probably not doing your kids a favor to cancel a policy that would help with your future care, if they're likely going to try to provide that care in the absence of the policy. It's at least worth discussing together first.

Posted by Mark at 10:35 AM | Comments (0) | TrackBack
Category(s): Family Finances, Retirement

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Another tool that could help you save money

A few weeks back, we told you about three tools that could help you save money. Today, as part of SMI's new Personal Finance Friday series, I'm back this week with another one.

I'd like to introduce you to Ziplist. What is it? "ZipList is a free shopping list management tool that allows you to create and share grocery lists with family members." After registering for your free account, you can start building your lists by searching for items and adding them.

While the service is geared towards groceries, you can add clothes, home improvement items, essentially anything you want. There are fields for coupon information, notes, and the ability to mark an item as "Important." You can assign certain items to a preferred store and if a store you shop at isn't listed in your zip code, you can create it. You can even rearrange the store's aisles so that your list is geographically efficient.

Where Ziplist really shines is with its recipe functions. You can add recipes to your account and whenever you're ready to shop for them, simply find that recipe and click "Add to list" and the recipe's items will be added to your list. You can even add recipes you find on the web by installing a special link on your toolbar and clicking it when there's a recipe you want to keep. Very slick.

Furthermore, Ziplist has a free app for the iPhone so you can access your lists on the go. Additionally, you could build your lists using only your iPhone's camera by scanning the bar code of the items you'd like to add. Don't have an iPhone? There are options to access your list via text messaging, instant messaging, and email.

You can also share your lists. This is especially helpful for families. Say I remember that my wife is going to the store today and there is a certain melt-in-your-mouth-not-in-your-hands chocolate I'd like. I simply add it to the shared list (via the site, email, text, instant message, or my iPhone). When she pulls up the list on her phone, there's my candy, organized by category.

There are other services similar to Ziplist, like Grocery iQ. While Grocery iQ doesn't allow you to add items straight from your computer, the interface might be more intuitive for some. Furthermore, it has free apps for both the iPhone and the Android platforms. Overall, I have found Ziplist far more robust and feature-rich, but since they're both free, they're both worth trying out.

So you're saying to yourself, "This is all fine and dandy, but how does it help me save money?"

A few ways:

1. You aren't likely to buy items you already have or forget items and have to spend time and money (on gas) going back to the store to get the missed items.
2. Having a list keeps you more efficient — and, as they say, time is money.
3. But most importantly, sticking to lists is one of the first lines of attack against impulse buys. If you'll commit yourself to your list (and coupons), you won't likely walk out of Costco with a greenhouse they tempt you to impulse-buy while you wait (and wait and wait) in one of the only two lanes they have open!

Next Friday, we'll focus on preparing for retirement. Spend wisely — and have a great weekend!

Posted by Matthew at 11:55 AM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): family finances, money-saving tips, Personal Finance Friday

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5 ways to curb impulse spending

Welcome to our new series, Personal Financial Friday!

Each week, as you head into the weekend, the SMI Visitor's Weblog will serve up several practical ideas on making the most of what the Lord has entrusted to you. And every so often, we'll call on of our favorite personal finance (PF) bloggers to present a guest post.

In fact, we launch our series today with a post from one of the best in the PF blogopshere, Bob Lotich of ChristianPF — a personal finance blog "dedicated to helping Christians become better stewards of what God has provided." Take it away, Bob!

When the economy is good and jobs are secure, impulse buying is a feel-good luxury that reminds you of your success. But when credit-card debt starts to mount, the economy gets wobbly, and your next paycheck is less certain, impulse buying becomes a dangerous addiction that can lead to a precarious financial situation.

There's a simple beauty to be had from fun that comes for free. Recently, a friend who's been unemployed for the better part of a year told me he'd taken his wife for a walk by the riverside park in his city. Although they spent no money, it was the best fun the two of them had enjoyed in some time.

My friend used to be a big spender with a good paying job who tried to prove his love to his wife and family by giving them a big house with all the latest toys. Now, in a very different situation, he's discovered he must stop his impulse buying or perish.

How can you curb impulse buying? Here are five tips to get you started.

1. Avoid places that cause you to spend.

If one of your favorite pastimes is browsing Amazon.com and you know you can't afford the latest version of the Kindle, don't go there. Don't go to your favorite clothing stores, bookstores, online retail sites, and coffee shops.

You may tell yourself you won't get the $4.50 latte and just stick to the $1.75 drip coffee instead, or that you'll maintain the resolve not to click the “Add to cart” button, but why torture yourself with the temptation? If you don't go there, you can't buy it.

2. Have a yard sale.

What does cleaning out your closet, your garage, your attic, and your basement have to do with impulse spending? Consider what almost every person who has ever had a yard sale has realized: you have a lot of stuff that you bought but never use.

Just the process of sorting through the clothes you bought on a whim and only wore once, or the kitchen gadget you never take out of cabinet, teaches you a valuable lesson about impulse spending. Much of what we buy, we don't really need. Those things rarely make us happier, and even they do, it's often a short-lived thrill. Selling your unused impulse purchases in a yard sale puts cash back in your pocket, while freeing you from the burden of stuff weighing down your attic and your conscience.

3. Write down what you want.

Instead of buying an impulse item right away, write it down on a Santa-style list of wants. Put that list somewhere you can see it, somewhere you can add to it any time. Instead of making the purchase, leave the list alone for a period of time — at least a month. Give yourself permission to buy anything on the list after that period of time.

Something interesting is likely to happen. When you come back to the list after a month or so, you may laugh at some of the things you thought you "ABSOLUTELY HAD TO HAVE." It's quite possible that you'll no longer feel the need to purchase most of those things, and you'll wonder why you were so excited about them in the first place.

4. Save up.

Do you remember saving your allowance for a big purchase when you were a kid? It was fun to watch the change or the dollar bills in your piggy bank grow as you worked hard to put a little bit of your allowance aside each week or month.

Why stop saving as an adult? Instead of buying an item on impulse, open a savings account and set aside a little bit of money each week or month until you've saved enough to get the item. This method of purchasing allows you to enjoy those "want not need" items, but without the budget-destroying guilt trip.

5. The best things in life are free.

When it comes right down to it, happiness is a state of mind, not a new pair of shoes. As my friend discovered, our greatest enjoyments in life don't come from our credit cards anyway. Despite what marketing geniuses try to convince us of in commercials and advertisements, "more stuff" and "more food" are not the keys to happiness. Impulse buying won't solve relationship problems or improve self-esteem or make us more attractive.

The best way to cure impulse buying is to ask yourself what lies beneath your compulsion to spend. You might find that what you're really looking for is far less tangible than a new gadget.

Indeed, like my friend, you might discover that the best things in life really are free.

Thanks, Bob!

Next Friday: A smart phone app that could save you money — if you use it wisely. Have a great weekend (and don't forget to check out the new October issue of the Sound Mind Investing newsletter)!

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Category(s): Family Finances
Tag(s): impulse spending, personal finance blog, Personal Finance Friday

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Bing Cashback is back! Sort of... well, not really

It was the best of times, it was the worst of times.

Today, I finally redeemed all the Bing Cashback rewards I had accumulated over the past year. But it was bittersweet. A few weeks ago, my go-to cashback site announced its closing. So, through misty eyes and a heavy heart, I made the redemption for both the first and the last time.

Build it and they will come.

Perhaps that's Microsoft's thinking behind the announcement of Bing Rewards, the replacement for Bing Cashback. Here's how it works:

1) Download the Bing Bar
2) Register with a free Windows Live ID
3) Start earning credits

How do you earn credits? By doing things like searches, setting your homepage to Bing or trying out new features of Bing. When you've earned enough credits, you can redeem them for gift cards, electronics, digital downloads, and movie tickets, to name a few.

Of course, earning enough credits to get a substantial reward could take quite a while. In fact, this is the same business model behind Swagbucks.com. I have an account on Swagbucks that I rarely use because it was taking forever to earn enough points to redeem anything worthwhile. And more importantly, I didn't like the search results.

And that's what this is really all about... search.

You see, Bing Rewards is mostly a poorly disguised effort (if not ill-conceived) by Microsoft in its never-ending battle to drain market share from Google's bread and butter — its search engine. The good news for Microsoft is that Bing has not only been a solid performer, but in the grand scheme of things, a grand-slam. The problem is, the score was 55 to 2, with Microsoft on the short end. So maybe now it's 55 to 6. But to make the deficit reasonable, you're gonna need a constant stream of base hits plus the occasional home run here and there.

The question then becomes: Is Bing Rewards even a base hit? Maybe. Some won't like that you're required to download the Bing Bar (which is used to track your credits). I don't care for that either, but it doesn't bother nearly as much as the requirement to use Microsoft's Internet Explorer browser. I'm a Firefox user and will not switch browsers just to participate in Bing Rewards.

For Bing Rewards to bat some runners home, Microsoft will have to open it up to other browsers and remove the requirement to download the Bing Bar (and even then I'm skeptical how much it would help). If they do that, I'll participate because I quite like Bing and use it for my searching already. But it doesn't mean I have to be happy about it. Bing Cashback had set the standard and I'll be reminded of that every time I earn a single, lousy credit.

You can't always get what you want... But if you try sometimes you might find...
You get what you need

That may be true, I'm just not thinking this is one of those times.

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Category(s): Family Finances
Tag(s): family finances, money-saving tips

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3 tools that could help you save money

I'm a sucker for most calculators, sites, graphs, apps — essentially any techie tool — designed to help me save money. I've recently come across three tools aimed at doing just that.

1% More Savings Calculator: This aptly named tool does one thing and does it well. Simply put in a few pieces of data (income, savings balance, time horizon, etc.) and it'll produce a graph showing your ending savings balance at your current rate of saving, your balance at an additional 1% of saving, and finally, your balance if you could save by an additional 1% each year until you reached 16% total savings.

The real fun comes by moving the "Percent You Save Each Year" or "Expected Annual Return" slider one notch to the right to see what a difference a single percentage point can make.

Takeaway: It's a nice little motivator. Working hard to eke out an extra percent of savings each year can make a big difference over the long haul — but not as big as increasing the expected rate of return by 1%. But, of course, we applaud both.

Springpad: An app that helps you remember stuff: Essentially, Springpad is a free service that tries to help you keep track of everything from recipes to movies you want to see to gift ideas and more.

Where Springpad gets really interesting is that it can alert you when a particular item that you've added has dropped in price. For instance, as this nice review points out, Springpad may let you know when an item that's used in one of your recipes goes on sale.

I've been playing around with Springpad for the past few weeks. When I logged in today, I saw I had an alert. Turned out, an album I had added from Amazon had a price change by $2. And what's interesting is the price change came from Buy.com. So even though I only added it from one vendor, it tracked the price from multiples, and when there was a price change it let me know.

Furthermore, it also alerted me to a special offer with a promo code from Amazon on how to save $3 on an album. Pretty nifty.

I did this all from my computer. There are also free apps — iPhone, iPad, and Android — to help you keep track of stuff on the go. Your accounts will sync across all platforms (so if you add something from your phone, it will show up when you log in on the computer). Springpad recently updated the app to include alerts on special offers and price drops. I'd also like to see an email or SMS option for these alerts, but this is a good step in that direction.

Takeway: This a pretty useful little service — and seeing how it's free, it certainly worth a try! (The only sticky note I'll need now is the reminder to actually use Springpad.)

Abogo: Transportation costs made transparent: This is a great site for those who are moving and are curious about transportation costs for getting around town. As this NYT write-up points out, you simply enter an address and Abogo will tell you how much the average household in that neighborhood spends on transportation costs. Now keep in mind, this is an average, not a projection specific to you. There are just too many variables to get that precise.

For instance, when I entered my address, it gave me a cost that was much higher than we pay (thankfully). But then again, I'm only about 15 minutes from work, my wife is a stay-at-home mom (i.e., no commute), the kids carpool to school, my car ownership costs are reasonable, etc. Of course, even approximately determining the amount one spends on transportation costs takes a crazy amount of math (PDF). So don't expect super-high accuracy — but since the tool is free, it certainly doesn't hurt to consult it.

Takeaway: If you're moving and transportation costs among prospective neighborhoods are a concern, might as well check it out. If you're staying put but want to feel better about your costs cause you walk to work, then by all means, Abogo.

Posted by Matthew at 8:55 AM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): family finances, money-saving tips

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An app that will save you money... or cost you money

A few hundred thousand cell phone apps are available to help you do everything from catalog your wardrobe to organize your grocery list. But in my experience, what often sounds like a useful app ends up being one I rarely use. For every 10 I get, I probably use only one with any kind of regularity. Even less often does an app actually help me save money.

That could change with the release of Shopkick. It's part of a genre of apps, known as "check in" apps, that use the GPS features of the phone to let others know where you are and what you've been up to. You can also use such apps to win virtual prizes or score points toward physical prizes. So far, the most popular of these apps is FourSquare, though others such as Gowalla, Whrrl, and SCVNGR are gaining in popularity.

Shopkick wants to take the idea of a location-based social app and put some real financial incentives behind it, so that it becomes more than just a passing fad but an actual money-saver for the user (and, of course, a revenue producer for businesses). If they keep signing big name retailers, as they've done with Best Buy, Shopkick could become a game-changer.

Shopkick has also upped the ante by installing custom hardware in participating Best Buy stores that will allow targeted offers and rewards based on the department you happen to be shopping in. To see the possible future of Shopkick, you can watch the video below.

I see some upside in this free service, though consumers will have to be careful. I mean yes, it could save you money. But there's also the possibility that Shopkick will have you doing scavenger hunts around the store, tempting you with special one-time offers that could lead you to spend more than you had planned. Time will tell.

If Shopkick signs up enough stores that I shop at regularly (grocery stores, gas stations, certain restaurants), significant savings could follow. But I'll have restrain myself and stick to my list. Impulse buys have been known to wreck many a budget.

Posted by Matthew at 1:22 PM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): apps, money saving tips

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College students and credit cards

If you have son or daughter in college, you're sure to be interested in how the new Credit CARD Act affects card marketing on campus. Also, the new law restricts card availability for those under 21.

SMI assistant editor Joseph Slife discussed the details this week in a conversation with host Bob Crittenden on Faith Meeting House from Alabama's Faith Radio.

You can listen below (12 min.) — or download an mp3 (Windows users: right click, then "save link as").

A related story — from the September issue of the Sound Mind Investing newsletter — is here (subscribers' link).

Posted by Matthew at 2:05 AM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): college, credit cards, radio

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Be ye perfect

Scripture does urge us to "aim for perfection," but I don't think this is what the apostle Paul had in mind.

From Money Magazine (via CNN):

Chris Peplinski is pursuing his own brand of flawlessness: an 850 credit score.

The 37-year-old stay-at-home dad from Rogers, Ark., has already nabbed 813 on the FICO scale, the credit scoring system most lenders use in sizing up potential borrowers....

Nevertheless, Peplinski won't be satisfied until he hits the maximum: 850. Why? "Your credit score tells a lot about you," Peplinski explains. "A high score means you're responsible and in control of your life. You're trustworthy."

To reach his goal, Peplinski...tweaks his behavior to eke out every possible additional point. Two years ago, he took out a car loan even though he and his wife, Chrissy, had the cash to buy their wheels outright.... He did it because FICO favors those with a variety of credit types, such as mortgage, credit cards, and auto loans.

"I probably paid $100 in interest," he says. "But it was worth it because we raised our credit scores by 15 points."

Money rightly notes that Peplinksi (and others like him also quoted in the story) are "obsessed."

Of the score strivers MONEY interviewed, most check their score obsessively, at least every few months — at a cost of $50 or more a year. They also fixate on their credit reports, upon which the scores are based.

There is, of course, no need for any of this. Sure, it's a good idea to check your credit reports every so often for errors (once a year is plenty and doing so is free). And, as noted in SMI's August-issue article, Know the Score (subscribers' link), it's also good idea to also check your credit scores once in a while.

But there's no reason to be obsessed about any of this. If you simply live within your means and pay your bills on time, you'll be fine.

Peplinkski makes his case below:

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Credit cards and college students

The Level 1 article in our latest Sound Mind Investing newsletter — Big News on Campus: New Law Limits Credit Card Pitches to Students (subscribers' link) — focuses on changes in credit card rules that will directly affect teenagers and young adults.

Among them: Under the Credit CARD Act of 2009, card issuers are not supposed to open accounts for anyone under age 21 unless the young person has "sufficient income" and an "independent ability" to repay. (Alternately, an underage applicant can have a financially responsible adult co-sign on the account.)

But neither the CARD Act nor the regulations issued under the Act by the Federal Reserve clearly define "sufficient income" and "independent ability." The result: confusion.

CreditCardGuide.com (a site affiliated with well-known Bankrate.com) has been checking around to find out how various credit card companies are responding to the unclear rules.

Without specific standards for what it means to have an "independent ability to make required minimum payments" nor for proving such "ability," it has been up to card issuers to lay down the policies. The outcome, not surprisingly, is a mixed bag of vague and lenient policies....

One major credit card issuer has set the "sufficient income" level for those under age 21 at a mere $2,000 per year. Applicants are allowed to include scholarships, grants, and parental contributions in that total. Since these sources of income for most full-time students would exceed more than $2,000; effectively any student under the age of 21 could be approved under that guideline.

Other card issuers don't give specific income information in the online application material, nor guidelines for which sources of income are acceptable. In online chats, however, customer service reps from several card issuers specifically stated that personal income may include other income than employment income, including financial aid such as grants — and even loans.

As for verifying any stated sources of income, the verification process for that income appears to be as loose as the income requirements themselves. For example, when asked how proof of income should be provided, the customer service rep for one card issuer in an online chat replied, "On the application, put how much income you have in one year." When asked if the card issuer would call for verification, the rep indicated that there would be no following up.

The potential problems are apparent: some young people will no doubt stretch the truth on card applications, claiming income that doesn't exist; others will simply claim students loans or grants as income, making the new rules largely ineffective.

Asked how card issuers will gauge "sufficient income," Gerri Detweiler, a personal finance expert for Credit.com, told SMI that credit reporting agencies will use "capacity scores" for young credit card applicants. They're "similar to credit scores in that they gather information from various sources and predict an applicant's ability to pay," she said.

Of course, credit agencies will have a limited amount of data on which to draw because most young people lack a financial history, so it is unclear just how helpful a "capacity score" will be.

Whatever the challenges of implementation, these new rules are now the law of the land. We'll simply have to "wait and see" to judge their effectiveness.

Posted by Joseph at 10:25 AM | Comments (0) | TrackBack
Category(s): College, Family Finances

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New rules for debt-settlement companies

The Federal Trade Commission has issued new rules that update our July 2009 SMI newsletter story, Settle A Debt for Less than You Owe?

The Baltimore Sun provides the basics.

Companies promising to settle debts for less than you owe soon won't be able to charge for their services until they do their job.

The Federal Trade Commission...plans to outlaw advance fees charged by for-profits pitching debt relief services over the telephone beginning Oct. 27. After that, consumers won't have to pay a fee until a debt is reduced.

Also starting next month, debt settlement companies must disclose to prospective clients the cost of the program, how long it will take to get the results promised and any negative consequences of the debt relief program.

USA Today personal-finance writer Sandra Block adds more:

The rule will crack down on marketing companies that earn big commissions for signing up as many customers for debt settlement as they can, says Gerri Detweiler, personal finance expert for Credit.com. These businesses have no interest in determining whether consumers are good candidates for debt settlement, she says....

[Still,] Detweiler contends that debt settlement remains a viable option for some consumers who have large credit card debts but aren't good candidates for bankruptcy....

[T]he FTC rule provides a good guide to the kinds of questions you should ask before you [sign up with a debt-settlement company]. For example:

• What's your success rate, and what percentage of people drop out of your program?....
• How much will it cost, and how long will it take to settle my debts?....
• How much will I need to save? Debt-settlement companies typically ask you to make regular payments to a dedicated account. When a certain amount has been saved, they'll go to your creditors and offer to pay off a percentage of the debt. The rule requires debt-settlement firms to provide a reasonable estimate of the amount you'll need to save before they'll make an offer.

Despite the new rules, the advice in our 2009 article still stands: "Although debt-settlement companies have helped some debtors, this is definitely a 'let-the-buyer-beware' area."

Another point worth mentioning — FTC chairman Jon Leibowitz says that before hiring a debt-settlement firm, it's a good idea to call your creditors and explain your situation. "You can sometimes develop your own workout plan," Leibowitz says. He notes that in some cases creditors "are willing to help consumers because it's in their own best interest."

Or as Larry Burkett used to put it, "It's better to run toward your creditors than to run away from them."

Posted by Joseph at 10:20 AM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): debt, debt-settlement

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Are home buyer resale warranties a good idea?

We moved in the spring, and it seems like the move has created as many questions as it answered: What should I do with my old stuff, sell it or trade it? Which digital services do I really need at the new house? Are mortgage-savings programs a good idea?

The newest question is whether or not to get a "home buyer resale warranty" (not to be confused with a home warranty offered by a builder). If you're unfamiliar with these, they're more or less a service contract on various components of your house, such as appliances, HVAC, and water heaters. They are usually considered at the onset of a relocation, but many can be purchased at any time.

The one we're being offered is by American Home Shield. It costs $356/year for the basic plan ($512/year for the "Enhanced Plan") and works like this: when a covered item breaks down, you can contact them by phone or online and request a service call. After the request is processed, one of their "approved and insured contractors" will come out to diagnose and fix the problem. The cost for this "Trade Service Call" is $60.

Sounds reasonable, but let's look at some of the fine print:

• "This Trade Service Call Fee applies to the initial visit by a contract for each covered trade. This initial fee covers any additional contractor visits required for the same breakdown within 30 days of the original service date. Additional charges may apply for some repairs and replacements."
• "... Warranty covers the repair or replacement of many system and appliance breakdowns, but not necessarily the entire system or appliance."
• "... may provide cash back in lieu of repair or replacement in the amount of AHS's actual cost to repair or replace such item, which in most cases may be less than actual retail pricing."
• "... [items needing to be replaced] will be replaced with units having comparable features, not necessarily the same dimension, color, and/or brand."

Hmmmm... you thinking what I'm thinking? That's a lot of fine print. Let me see if I've got this right:

My two-year-old $1,100 Kenmore stainless steel 3 x 3 x 6-foot side-by-side fridge is acting wonky. So I call, a technician comes out to "fix" the problem and I shell out 60 bucks. 31 days later, it's acting up again so I reluctantly make another call. After parting with another $60, tech tells me it's unfixable.

I call AHS and they give me two options: I can either have the $600 it would cost them to replace it with a "comparable" fridge, or they'll deliver me a brand new 2.5 x 3.5 x 6.2-foot Hotpoint bottom-freezer... in bisque.

This is a real possibility.

So let's do the math: $512 for the Enhanced Plan (basic plan doesn't cover refrigerators) + $60 + $60 = $632. So in essence I've either payed $632 in order to get $600 (which isn't usually a good deal) — OR — I paid $632 for a fridge that doesn't match ...have the same features... or fit (which is arguably an EVEN worse deal).

Of course, while this is a possibility, it isn't a certainty. Instead, he could have fixed it the first time he came out and I could have no more problems the rest of the year.

Then I'm only out $572 ($512 + $60) for a repair that, according to AHS's literature, averages $157. In that case it would have been worth it because I... wait a minute... no... no, it still wouldn't have been worth it. I just flushed $415 down the toilet!

And speaking of toilets, the average cost to repair one is $70 and the average cost to replace one is $285. So if my toilet broke instead of the fridge, I just paid $572 to have an old one fixed when I could have spent the same amount and bought TWO brand new ones!

So you can see, the fewer things that break, the more "expensive" this coverage is. If you really want to get your money's worth, you need a lot of things to break. I don't know about you, but I'm not big on rooting for my house to fall apart so that I can get my money's worth out of a warranty. Come to think of it, kinda sounds like insurance... EUREKA! Call it a warranty, call it a service contract, call it whatever you want, but we've discovered the truth: it's just another form of insurance.

Nothing wrong with insurance as long as you know that's what you're getting. So back to my original question, are these warranties a good idea? If the seller pays for it, then sure, why not. But if it's coming out of your pocket then consider the age of the home, its various components, and what exactly is covered in order to make an informed decision. Again, pay attention to the fine print.

In our first home we chose to get one because we were first-time home buyers and it gave us a little peace of mind (which is, perhaps, the biggest selling point). But when we had a plumbing issue within that first year, since it had to do with pipes outside the footprint of the walls, it wasn't covered (said it right there in the fine print and a customer service rep confirmed it for me, unfortunately).

So will we get a "home buyer resale warranty"? Doesn't look like it. The home is only four years old and we have adequate savings to cover any breakages that would have been covered by the warranty. What we could do each year is put the contract fee (or premium, pending how you look at it) in a separate savings account just for home repairs (not unlike what I suggested for pet insurance). That way if we need it, we'll have it. And if we don't need it, at least we didn't wash it down a drain that never needed fixing.

Posted by Matthew at 9:00 AM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): budget, money saving tips, mortgage

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The end of Bing Cashback

(Bumped — with an update)

It's too bad really, I was a big fan of Bing Cashback. I first started using Bing Cashback late last year, when, in an effort to diversify the free internet services I frequent (i.e. I don't like relying too much on any one provider, be it Yahoo, Google, or Microsoft), I switched to Bing Search. Since that time, I've saved nearly $250.

But according to their site, that's all changing:

We are writing to notify you that the Bing cashback program will be discontinued, and the last day to earn cash back on your Bing Shopping purchases will be July 30, 2010.

So why did it close down? Usually, these things just boil down to profitability. But here's NPR's take:

Note that Microsoft themselves said, "We did not see the broad adoption we had hoped for." That could mean not enough users of the program or not enough increased search engine market share or... But who knows?

So what if you're a Bing Cashback user and you have rebate money you haven't redeemed? No worries, you have until July 30, 2011.

But what if you're such a Bing devotee that you aren't interested in other rebate programs? There may be hope for you after all. Did you notice that at the end of their announcement, they say, "...and we are currently working on an exciting new program which you will hear more about from us later this summer."

Hmmmm... I'm intrigued.

Update: Rumors are flying around that Bing Cashback might team up with Amazon. Whether or not that is true is anyone's guess. Until we know for sure, you can use this handy list of other rebate sites from Comparerewards.com for your online shopping.

Posted by Matthew at 4:55 PM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): budget, family finances, money saving tips

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Is pet insurance worth it?

I'm torn. I can't decide if my love for our dog outweighs my distaste for feeling duped into buying yet another kind of insurance: pet insurance. Yes, it's real with actual revenue numbers to back it up. Opinions vary regarding its merits: this piece acknowledges the value, while this piece does not. Then there's this information about calculating the worth of your pet.

If you ask me, it's impossible to put a price on a face like Gertie's. But I think I'm in the "factor it into your budget" camp. In other words, instead of paying premiums to a pet insurance company, open a pet savings account and "pay yourself" instead. If we put money aside now, not only will it be there if we need it but we'll get the benefit of compounding interest.

But that's only half the story, the money-saving, budget-conscience half.

Isn't there a stewardship issue here? Don't think so? Maybe this piece will change your mind. It willl certainly incense the hard core pets-aren't-people-they're-possessions crowd. Even a big-time pet lover like myself was taken back. Listen to this:

APPMA reports that 42% of dogs now sleep in the same bed as their owners. I'm not judging anyone... yet.

Half of all dog owners say they consider their pet's comfort when buying a car. I barely consider my kids' comfort.

With annual growth nearing 50%, the pooper scooper industry is now experiencing a lot of consolidation...There's a "pooper scooper industry"?

I'm not going to say that some of these crazy things people do for their pets are morally or even financially wrong because I don't know their heart or their giving. But it's hard not to have questions when you learn that Fido could be put on a cocktail of Slentrol and Reconcile; one for the unwanted pounds he put on while being depressed and the other for the depression from all the canine separation anxiety. My question in particular: Why medicate when he could just have liposuction and go everywhere with you in your canine-cozy Caddy? ;-)

Is it just me or is there a financial stewardship issue banging around in here somewhere? I think so, or at least there certainly can be without proper balance. You see, I want my giving to reflect how much I love the God and love other people. So it's more about my love for Him and less about my lack of love for Gertie.

Besides, when pet cloning comes down in price, Gertie will know how much we love her for the rest of her lives.

(This piece originally appeared in a July 2007 blog post (membership required) of The Sound Mind Investing Weblog.)

Posted by Matthew at 2:30 PM | Comments (0) | TrackBack
Category(s): Family Finances, Giving and Stewardship
Tag(s): budget, family finances, insurance, money saving tips, savings strategies

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A review of Swaptree.com

Last summer, we wrote about Swaptree, a website that allows you to list and trade books, music, DVDs, and video games for free (and soon you'll able to trade Blu-ray discs and audio books). Since then, I've had a chance to use it in real life.

Here's how it works in general. Lots of individuals create lists of items they want, as well as items they have to trade. For the most part, you're saying that you're willing to trade any item on your "have" list for any item on your "want" list. (You always have the opportunity to reject a trade, but if you do this too often, Swaptree will evidently get cranky.) This is important, because in most cases Swaptree arranges deals among three parties, rather than two. In other words, you're sending an item to person A while getting an item from person B.

Here's the detailed version of how this works:

After you sign up for a free account, you are prompted to list items you have to trade and those you'd like to have. Listing items you have is quite easy. You either search for it or, better yet, simply enter in the UPC or ISBN in the "Have" list box and click "Add". From there, you select the item's condition and give a description if you'd like, then submit. Very quick and easy.

To add items to your Want List, type in the name of the item in the search box, then click the "Want It" link when it pops up. It's really that easy.

Next, you can view potential trades by clicking on your "Want List" and then sort the selections by "View Only Get Now Items." If there are any trades available to you, they will show up here. Next you can initiate a trade, assuming you are okay with the exchange. But not all items are equal. You may not want to trade a popular movie for an old paperback. But if you are good with the terms, you can initiate the trade and wait for the other party to accept (they are given roughly 2 days). If it's accepted, you'll get an email (or you can check back on the status by clicking the "My Trades").

Assuming it's accepted, you have a couple days to mail the item. Swaptree will give you the person's mailing address. You can either have Swaptree calculate and print the postage/mailing label for you right then (you'll need a credit card to pay for the postage if you select this option and they charge a small fee for this service - but it's extremely convenient and the prices are quite reasonable), or you can calculate your own postage.

After you mail it, you can "Contact the user" to notify them of your ship date and/or ask them questions/make comments. Once you've received your item, you can come back to "Rate the User". This rating might make a difference with whom you trade in the future. Since other users also likely take notice, it's advisable to solicit positive feedback if they haven't already rated you.

And that's Swaptree in a nutshell. We recently moved and came across some old movies and video games that I had intended to sell on eBay. But since I didn't want to hassle with auctions, and there were some DVDs we wanted, I thought I'd give Swaptree a try. And it works as advertised. I'm notified when someone initiates a trade and I check back once a week to see if there any available trades I may have missed or if I want to add some items to our Want List. So far, I've made 4 trades (traded movies for movies and traded video games for movies) and haven't had any issues. The only fees I've paid were the shipping costs. Again, Swaptree makes a small profit when you buy and print postage but you don't have to use their postage generator.

If there's a downside to Swaptree, it's that pending the size of your Want and Have Lists, a trade could take a while. So if you're in a rush, this probably isn't your best option. But it will likely be on my pre-eBay checklist if there's an book, movie, CD, or video game I'm interested in getting. And it sure beats paying retail because as is often the case, patience pays dividends for the frugal.

UPDATE: Swaptree has acquired Swap.com. Besides an eventual name change and a bigger user base, the changes brought about by this acquisition will take some time to manifest. In the meantime, it's free trading as usual.

Posted by Matthew at 3:13 PM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): budget, debt, family finances, money saving tips

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An "easy" way to reduce your mortgage

Wanna get out of debt? Start by looking at your biggest expenses and find ways to reduce or eliminate them. For many of us, that biggest expense is our mortgage.

But not for 45-year-old Jay Shafer of Sebastopol, California. Why? Cause Jay has taken downsizing to a whole other level. Jay lives in an 89-square-foot house he designed and named "Tumbleweed." Jay, a former grocery store clerk, now designs these houses for a living. And not only has his mortgage disappeared, his utilities are now under $100 a year. Here's his story:

That said, I wouldn't go near this lifestyle till we're empty nesters because of the following equation:

Posted by Matthew at 10:36 AM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): debt, family finances, mortgage

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Interview with Mint.com founder

You may have heard us mention Mint.com a time or two around here. For the uninitiated, Mint is a free, web-based money management tool. Founder Aaron Patzer launched Mint in 2007. It quickly rose to the top of web-based financial tools and two years later, he sold it to Intuit (maker of Quicken/Quickbooks) for $170 million.

While most of the beefs I had in the SMI review I wrote in 2008 (subscribers' link) have been addressed, I wanted to ask about a couple that hadn't:

• An envelope budgeting option, and
• The possibility of a comprehensive part standalone product, part web-based product, and part mobile product all rolled into one.

I was able to ask Aaron Patzer (who still heads Mint, though now as part of Quicken) about these two features during a live webcast he did yesterday. If you're interested in how he answered, fast forward to the 13:16 and 28:00 marks, respectively.

Posted by Matthew at 11:35 AM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): budget, money saving tips

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Big picture finances

Back in April I was thumbing through Consumer Reports' annual auto issue when I came across an article entitled, "Best Values: Small Cars and Family Cars Provide the Most Bank for Your Buck." No real surprise there, but always looking to reassure my value-seeking sensibilities, I continued on to read about road-test scores, predicted reliability ratings, and five-year owner-cost estimates — which is when it got really interesting.

On the next page was a list of 60+ cars with various data points (here's a similar article). The most compelling data to me was called "cost per mile." I quickly scanned till I found our two-year-old Honda Odyssey (which I LOVE and have NO problems whatsoever saying as much). Cost? $.71/mile. I remember thinking, "Man that's high." But then I went on with life and didn't give it too much extra thought.

The significance of this expenditure didn't dawn on me till the other day when we were carpooling with some folks to an out-of-town event in Frankfort, Kentucky. From where I live in Louisville, that's about 50 miles — i.e. $35.50...one way.

Yes, Consumer Reports' cost-per-mile factors in gas, maintenance, depreciation, insurance premiums, even sales tax. And it's based only on a five-year ownership. But for someone who hems and haws over spending $.99 on an iPhone app, it occurred to me that thinking about cost-per-mile could be revolutionary.

For instance, I often hop in the Odyssey (yeah, I could use our other car, but like I said, I'm the Minivan Man) and drive two miles up the road to the quickie mart for a Diet Coke. I now realize this is costing me $3.78/soda rather than the mere $.94 that I was rationalizing.

So I'm now thinking in terms of MPM (money per mile) rather than MPG (miles per gallon). Where we live, a trip to the grocery is not seven miles away, it's $4.97 away. And another $4.97 if I want to come back.

Okay, okay, I know — it's not technically "costing" me this at the time I'm driving. But it's roughly "equating" to this over the first five years. And yes, Consumer Reports is making some assumptions, so it's not 100% precise (Edmunds.com's True Cost to Own calculated the ownership operation to be $.58/mile).

So why bring this up? Because you and I often lose site of the big picture when we think about our finances.

We fall into the trap of "the-more-you-buy-the-more-you-save" sales (an oxymoron if I've ever heard of one — the more you buy the more you spend!). We hold on to a falling fund with a lot of our assets in it just so we don't get hit with a $50 early redemption fee. Or worst of all, we're stingy with our tithing on earth, even though we're promised eternal rewards in heaven. We would do better by keeping the big picture in mind.

So the next time your debating whether to buy a shirt that you only "kinda like" but it's 95% off (this is me nearly every time I go to Old Navy), or to drive an extra three miles out of our way to save $.02 on a gallon of gas, maybe you should stop and ask some questions:

• "Do I really need this?"
• "Can it wait?"
• "Is it part of my long-term plan?"
• "Am I being penny wise, dollar dumb?"

And most importantly:

• "Am I being a good steward of what's been entrusted to me by storing up treasures in heaven?"

Posted by Matthew at 12:40 PM | Comments (0) | TrackBack
Category(s): Family Finances, Investing Principles

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Multiple savings accounts — follow-up

The New York Times' Bucks blog offers good follow-up info on a topic we discussed in the June issue of SMI (subscribers' link): using multiple savings accounts as an aid to reach specific savings goals.

From Bucks' writer Jennifer Saranow Schultz:

A growing number of banks are offering features intended to help you allocate various savings accounts to specific goals.

As of [July 1], FNBO Direct customers no longer have to fill out complete applications to open new savings accounts. Instead, FNBO Direct fills out most of the applications for them. The new feature is aimed at making it easier for customers to open multiple savings accounts, each of which customers can name for a specific savings goal and all of which customers can track online with the same user name and password....

Since last year, Ally Bank has also had a similar offering, including the ability for customers to quickly set up multiple savings accounts, "nickname" them and see them all in one place online.

A spokeswoman for ING Direct, which has long offered such features, said 10 percent of the bank's customers had multiple savings accounts, with the top five nicknames (or savings goals) being "savings," "vacation," "emergency fund/rainy day," "house" and "taxes."...

Many credit unions also offer similar features as do other banks, including Capital One and Bank of America.

As we noted in our June article:

Having a series of dedicated savings accounts creates a structure that will help you follow through on your savings goals, especially when combined with automatic transfers from your checking account.

Goals can be a powerful driver of behavior, and being able to see — at a glance — how much is in each of your accumulation accounts (as well as in your emergency fund) lets you know exactly where you stand in relation to your various savings goals. As you see your balances rise, you'll be encouraged to keep moving forward.

For Ally customers, step-by-step instructions for setting up multiple accounts are here. Details for ING customers are here.

Below, Bob Lotich of ChristianPF.com explains how he uses ING's multiple-savings-accounts feature, which he calls a "virtual envelope budgeting system."

Posted by Joseph at 11:20 AM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): savings strategies

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Debt-relief programs often put debtors in deeper hole

A year ago, in an article titled Settle A Debt for Less than You Owe?, we looked at so-called debt settlement companies, noting that (to put it charitably) they tend to over-promise and under-deliver.

[R]eaching a debt settlement isn't quite as easy as [these companies'] ads imply. A settlement works only if you qualify and only if everything goes just right....

[I]f things go wrong, the debtor could end up with more debt, an angry creditor, a severely damaged credit score, perhaps a lawsuit — plus be out hundreds (maybe thousands) of dollars in fees.

We also warned that "this is definitely a 'let-the-buyer-beware' area. The field of debt settlement is replete with firms that appear to be little more than scams."

On Saturday (June 19), the New York Times published a helpful (though somewhat heavy-handed) front-page follow-up.

[Debt] settlement companies typically harvest fees reaching 15 to 20 percent of the credit card balances carried by their customers, and they tend to collect upfront, regardless of whether a customer's debt is actually reduced.

State attorneys general from New York to California and consumer watchdogs like the Better Business Bureau say the industry's proceeds come at the direct expense of financially troubled Americans who are being fleeced of their last dollars with dubious promises.

Consumers rarely emerge from debt settlement programs with their credit card balances eliminated, these critics say, and many wind up worse off, with severely damaged credit, ceaseless threats from collection agents and lawsuits from creditors....

In the typical arrangement, the companies direct consumers to set up special accounts and stock them with monthly deposits while skipping their credit card payments. Once balances reach sufficient size, negotiators strike lump-sum settlements with credit card companies that can cut debts in half. The programs generally last two to three years.

"What they don't tell their customers is when you stop sending the money, creditors get angry," said Andrew G. Pizor, a staff lawyer at the National Consumer Law Center. "Collection agents call. Sometimes they sue. People think they're settling their problems and getting some relief, and lo and behold they get slammed with a lawsuit."...

In April, the United States Government Accountability Office released a report drawing on undercover agents who posed as prospective customers at 20 debt settlement companies. According to the report, 17 of the 20 firms advised clients to stop paying their credit card bills. Some companies marketed their programs as if they had the imprimatur of the federal government, with one advertising itself as a "national debt relief stimulus plan."...

"The vast majority of companies provided fraudulent and deceptive information," said Gregory D. Kutz, managing director of forensic audits and special investigations at the G.A.O. in testimony before the Senate Commerce Committee during an April hearing.

The Federal Trade Commission is expected to release new rules (PDF) this summer aimed at curbing abuses in the debt settlement industry. In addition, several states may act to cap fees that debt settlement companies charge.

As we noted in Settle A Debt for Less than You Owe?, a more fruitful approach for those struggling with significant debt problems is to work with a nonprofit credit-counseling agency to set up a debt-management plan (DMP). A DMP helps consumers pay their debts (in full) over 36-60 months.

DebtAdvice.org, the website of the National Foundation for Credit Counseling, offers a searchable database of such counseling agencies.

Posted by Joseph at 10:45 AM | Comments (0) | TrackBack
Category(s): Family Finances
Tag(s): debt, debt-settlement

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Getting ready for Christmas

"Christmas Club accounts are now largely a thing of the past (undercut by the rise of easy credit)..." — so I wrote in the current issue of the Sound Mind Investing newsletter in an article on multiple savings accounts (subscribers' link).

That's true — Christmas Clubs have faded into the past for the most part.

But a reversal may be in the offing. Sears/Kmart promoted a Christmas Club program last year. Now, the New York Times reports another major retailer is rolling out such a club for this year:

Toys "R" Us is counting on an Eisenhower-era tactic to get consumers to spend this Christmas. The toy retailer will begin offering a "Christmas Savers Club" [this week] that allows shoppers to put money away with the company for holiday gifts.

Participants will receive a card similar to a gift card, and can contribute funds to it through cash or credit card payments. As an incentive Toys "R" Us will add 3 percent interest on the balance.

The program is a throwback to what banks and credit unions offered in the 1950s and 1960s before credit cards allowed people to spend money they did not have.

Our Level 2 article focused on Christmas Clubs run by banks, but many retailers had them too back in the day — to build customer loyalty, of course. That's exactly what Toys "R" Us is going for.

Shoppers can sign up for the program in Toys "R" Us stores, either at the cash register or the customer service stand. The company will add the interest on the balance as of Oct. 16, and the funds will be available Oct. 31 for purchases at Toys "R" Us and Babies "R" Us stores and Web sites.

Earning 3% is nothing to sneeze at these days, but unless you are absolutely, positively planning to buy something from Toys "R" Us — and you know exactly how much you're going to spend — it's probably better to set aside your Christmas savings in an earmarked bank account.

Earlier this week, I talked about the benefits of having multiple earmarked accounts with host Bob Crittenden on Faith Radio's Faith Meeting House program. Listen below (13 min.) — or download an mp3 (right click/save as).

Posted by Joseph at 10:10 AM
Category(s): Family Finances
Tag(s): radio, savings, savings strategies

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The (overdraft) protection racket

"We're willing to offer protection — for a fee. But if you want it, you'll have to sign up." That's the message many banks and credit unions are sending to their debit-card customers, as implementation nears for new Federal Reserve rules (PDF) on debit card overdrafts. You may be told that you will lose "important protections" or "a valuable safeguard" if you don't opt in.

Below is a snippet of the letter I received from my bank late last week.

MarketWatch's Chuck Jaffe has the background on what this is all about:

[Under current rules,] if someone present[s a debit] card against insufficient funds, [most banks will] make good on the transaction, put the account into the negative and tack on a fee of up to $40, putting the account further into the red....

All told, banks collected $38.5 billion in this type of overdraft fee alone in 2009, according to Moebs Services, a Chicago-based bank-industry consulting firm.

Under the Federal Reserve's new rules — which go into effect July 1 on new accounts and August 15 for existing customers — banks can only charge an overdraft fee on ATM and debit transactions if they first get customers to opt in to overdraft services.

If you don't opt in — and don't arrange for one of your accounts to back up another — and there's not enough in the account to cover a transaction, and you try to use your card against an inadequate balance, the purchase or withdrawal will be declined.

Sure, it's no fun being told that your card won't be accepted, but are you willing to shell out $30 or more to avoid embarrassment? Besides getting rejected might push you to get serious about the tasks of documenting your spending and balancing your checkbook.

"For many people, an overdraft is something accidental, where they haven't reconciled the account or recognized that their spouse just went out and bought something on another debit card linked to the account," said Gerri Detweiler, author of The Ultimate Credit Handbook....

"I just don't think that saving face with a clerk is worth 35 or 40 bucks a pop," Detweiler said.

Jaffe also quotes Greg McBride, senior financial analyst for BankRate.com: "Nothing will ever solve this problem better than knowing your balance and simply managing your spending so that overdrafts are never a problem." Amen.

By the way, recurring debit-card transactions — i.e., auto drafts for regular bills, such as a mortgage payment — are exempt from the new rules. If you overdraw, the bank will cover the transaction — and, of course, you'll pay a fee.

For a quick primer on debit cards (including some significant downsides of using one), see Mary Hunt's article, "What You Need to Know About Debit Cards," in the current issue of the Sound Mind Investing newsletter.

Update: The overwhelming majority of checking-account holders never overdraft their accounts, according to the FDIC. Most overdrafts are concentrated among about 14% of users (see graph).

Posted by Joseph at 8:30 AM | Comments (1) | TrackBack
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One of the best things you can do to stay out of financial trouble

The fundamentals of good financial management aren't difficult, but they do require 1) planning and 2) discipline to stick with your plan.

In a short interview Monday on Alabama's Faith Radio, SMI assistant editor Joseph Slife (right) talked with host Bob Crittenden about the importance of having a savings plan. In a follow-up to air soon, he'll discuss a simple way to make sure your savings plan works.

Use the audio player below to listen — only 7 minutes!

Posted by Matthew at 11:09 AM | Comments (0)
Category(s): Family Finances
Tag(s): radio, savings, savings strategies

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Where to put your savings

In these days of low, low interest rates (not to mention a fair amount of bank instability), where is a good place to store your savings?

SMI's executive editor Mark Biller (right) discussed that question with host Chuck Bentley on yesterday's MoneyLife radio program from Crown Financial Ministries.

Click the arrow below to listen (20 min.) — or use this link to download an mp3 (right click/save as).

Posted by Joseph at 10:05 AM
Category(s): Family Finances
Tag(s): Crown Financial Ministries, radio, savings

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Are mortgage-savings programs a good idea?

My family recently moved and with our new mortgage came some new mortgage product offerings. One such offering is a mortgage-savings program. If you're unfamiliar with these programs, they promise to accelerate your mortgage payoff by taking weekly or bi-weekly prepayments to apply to your mortgage, in turn saving you thousands.

As I was reading over the letter, an unpeaceful, uneasy feeling started to creep up. Here are some highlights from my letter:

• You do not increase your monthly payment
• You can eliminate more than 10 years of payments
• The equity in your home increases faster

These all sound great. Where do I sign up? What?... There's a catch?

Yep, it costs Kentucky residents an enrollment fee of $245.

Yikes, that is a lot. But I'll get a lot more back in saved interest. What... there's more?

Yes, it costs $3.50 per transaction if you're in the bi-weekly program or $1.95 per transaction for the weekly program.

Ouch. Let's see... 3.5 times 26, carry the one, that's another $91 for the bi-weekly and, hold on — $101 for the weekly. Well, I don't like it but since it's the only way to accomplish this... huh... there are other ways?

Do it yourself.

Do it myself? Uh... how?

Open a bank account from which to pay your monthly mortgage payment every month. Into that account, pay half the monthly payment every two weeks. At the end of each year, write a check on this account for an amount equal to your monthly payment and send it to the lender.

What's even easier is if you add an amount equal to 1/12 the monthly mortgage payment to each monthly mortgage payment. Not only is it easier, you'll pay off the loan a tad earlier than if you pay it bi-weekly.

Well, that's all fine and good, but that requires extra cash flow. This system won't increase my mortgage payment.

That's not entirely true.

It has to be true. Aren't you listening? I already went over this. It's written in this highly-bolded and underlined too-good-to-be-true sounding sales letter: "You do not increase your monthly payment."

It's a shell game. You see, they cut your payment in half, but they are essentially requiring you to pay every 28 days rather than every 30.5. So in total, you're paying more.

I'm confused.

Say your mortgage was $1,000. In a standard payment process, you'd make a $1,000 monthly payment and after a year's time, you'd have paid your lender $12,000, right?

Yes.

Now, instead of $1,000 every month, lets' do $500 every two weeks (ie, bi-weekly). There are 52 weeks in a year, so there are 26 two-week periods (52 / 2 = 26). You with me?

Yep.

So 26 bi-weekly payments of $500 would equal $13,000 after a year's worth of time (26 x $500 = $13,000).

Hey! That's tricky of them... borderline dishonest.

Perhaps. But let me leave you with another piece of info. Does that letter say anything about how the payments are processed?

Actually, it does. How'd you know?

Because I'm your conscience... your gut... your instinct... and when things seem to good to be true, they almost always are. What exactly does it say?

It says, "We process your bi-weekly debits from your checking or savings account, then make your monthly mortgage loan payment when due."

So let's get this straight... they are going to take our bi-weekly payment, but only pay it monthly. So what is that money doing in the meantime?

They're probably getting interest off of it!

That's right... you're catching on. They're getting an interest free loan on roughly 1/12 of a payment each month until they make the 13th payment at the end of a year.

So they're getting an interest free loan, an enrollment fee, and weekly or bi-weekly transaction fees for something we could do without them? What a rip!

Our thoughts exactly.

Posted by Matthew at 9:15 AM | Comments (0) | TrackBack
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Do you need it — or just want it? [UPDATE]

[NOTE: Do not attempt without the express approval of a supportive, loving spouse who is willing to go along with your tech-loving cost-cutting split personality!]

Back in February, I challenged myself (and hopefully you as well) to question needs vs. wants, especially keeping in mind technology and digital services. With companies constantly releasing "must-have" devices and services, both the upfront costs and the monthly fees that accompany such products can make living within your budget especially challenging.

First up, our cell phone. More specifically, texting. I had said:

Unfortunately, there's only one family plan and the individual plans wouldn't cover our average monthly texting. However, I'm experimenting with apps like textPlus which allows free texting to other textPlus users.

My first impression of textplus was less than favorable. Now admittedly, I haven't played around with it enough to give a comprehensive review, but to date, we haven't switched over. So no money saved there.

Next up, if you'll recall, was getting a credit for incorrect cable billing.

... Secondly, there was a package I NEVER signed up for (and never use) but was being charged $8/month for. I promptly canceled that one too and asked for a refund... The rep was friendly but said she couldn't do that... So I called back the next day, spoke with [another] rep, and then that rep's supervisor. I'm still waiting for a call from the supervisor's supervisor.

Well, after some kind-but-forceful persistence, the supervisor's supervisor did indeed issue us a credit of a couple hundred dollars. Just goes to show the importance of checking your bills and keeping companies accountable for their mistakes.

Third item — our home phone. I wrote:

With our home phone getting used less and less, I've been wanting to get rid of it (and its $26/month fee) for quite a while. I nagged my wife to death and she finally relented. So I ordered an Ooma. In a nutshell, Ooma is a device that connects to your high-speed Internet and your home phone and allows you to make calls at no charge...

We recently moved, so I figured I'd wait and set up the Ooma at the new house. So last week I did just that. I'm VERY happy to report that we now have a "free" home phone service. Setup took a little longer than advertised, but otherwise, it does everything it says it does and does them well.

We could add the extra features of Ooma Premier if we wanted to pay $10 a month, but we're going to pass. But I might pair it with my wife's cell phone/Google Voice so that whenever someone calls her, our home phone rings as well and she won't use her cell phone minutes. But in the meantime, we're content with saving the $26/month we were spending on a home phone.

But we weren't finished quite yet. You know that move I mentioned? We decided that would be an ideal time to cut cable TV altogether. Yeah, I said it... no TV. Not only does it save money ($50/month), it saves time. Admittedly, this may not stick as we like college basketball and football. So we'll see how it goes. If we get desperate, we could resort to watching TV on the computer. And we could always get a digital antenna and pickup signals the old fashioned way. Until then, we will keep our bare bones Netflix plan and/or use the nearby Redbox for our moving watching endeavors.

The point of all this is to get you evaluating true needs from wants. For the record, I'm not opposed to satisfying some wants if they're within your budget. Just be honest with yourself about the motivation for the product or service. You might be surprised at how few needs there really are.

Posted by Matthew at 8:50 AM | Comments (0) | TrackBack
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Tag(s): christian financial, family finances, money saving tips

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Harmful rule changes ahead for Education Savings Accounts?

One irritating thing about taxes — and anything related to taxes — is that the rules change with annoying frequency.

Case in point: several changes are likely to be forthcoming at year's end for tax-favored Coverdell Education Savings Accounts (ESAs). Certain provisions enacted by a Republican-led Congress in 2001 are set to expire, and at this point the current Congress doesn't seem inclined to renew them.

Although Coverdells have been overshadowed by state-sponsored "529" plans, they actually offer more investment flexibility than 529s, giving parents greater choice in where their money is invested. In addition, ESAs (unlike 529s) can be used not only for college expenses, but also to help pay qualified education expenses at the elementary, middle school, and high school levels. That's a great benefit for parents with children in private schools, as well as for parents paying for academic tutoring or extended-day programs.

Unfortunately, the "pre-college" aspect of ESAs seems likely to be on the way out. Moreover, contribution ceilings for Coverdell accounts, already not very high, could be sharply reduced.

Details from the Wall Street Journal:

[F]amilies planning to use a Coverdell account to pay for pre-college education expenses should think twice about opening or contributing to an account this year. Starting next year, withdrawals from Coverdells to pay expenses from kindergarten through 12th grade will no longer be tax-free, unless Congress acts to extend that benefit, which is not a sure thing.

Another prospective rule change would lower the limit on annual contributions to $500 starting next year, making Coverdells less useful for college savings. Already, the $2,000 limit has made Coverdells much less popular than 529 college-savings plans, which offer similar tax benefits for college costs and [have no federally imposed contribution limit]....

[Right now, i]nvestors can claim a Hope or Lifetime Learning tax credit for education in the same year they use Coverdell funds, as long as the tax credit and Coverdell money aren't used for the same expense. For example, an investor can take a tax credit for tuition in the same year he is using Coverdell money for books.... This is another benefit that could expire at year's end; the two tax benefits could become mutually exclusive.

The WSJ reports that Sen. Charles Grassley (R-Iowa) has introduced legislation that to preserve the pre-college benefit of Coverdell ESAs and keep the annual contribution cap from falling. But Joe Hurley, founder of SavingForCollege.com, is skeptical that Sen. Grassley's legislation will see the light of day — in part because many lawmakers don't like the idea of Coverdell accounts being used to pay for private school at the elementary and secondary level.

Mr. Hurley suggests either spending Coverdell accounts on K-12 expenses before the end of the year, or just accepting that the funds will have to go to college expenses later. He also points out that investors can move funds in Coverdell accounts to 529 accounts without triggering tax penalties.

That might make sense if the rules expire that currently allow people to use Coverdell funds and claim Hope or Lifetime Learning credits in the same year. Investors in 529 accounts have that same right, and [right now at least] it isn't at risk of changing.

Posted by Joseph at 9:29 AM | Comments (0) | TrackBack
Category(s): College, Family Finances

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The difference between saving and hoarding

A few weeks ago, I applauded the work ethic of the lowly ant — how it prepares for the future, storing up provisions for a later time. The Bible twice mentions the ant as an example of working hard to prepare for the future (Proverbs 6:6-8 and Proverbs 30:25).

But as Campus Crusade for Christ founder Bill Bright used to say, "Your biggest strength can be your biggest weakness." And believe it or not, this can be true of focusing on the future. You can over-do it and end up not enjoying life today.

Do you know someone who counts the cost of everything (ahem!... not that you could ever be one of those people)? I know people like that, and I believe their hearts are in the right place in that they're trying to be good stewards of God's money. But they can also zap some fun out of life. How?

• By guilting you with a barrage of questions about what you paid for something;
• By mooching off of you because they don't want the expense of paying for something themselves;
• By denying themselves a side of sour cream for their Burrito Inferno because of the 35-cent upcharge.

Ecclesiastes 5:12 says, "... the abundance of a rich man permits him no sleep." Is that because he's too busy worrying about his wealth? Verse 13 goes on to say, "I have seen a grievous evil under the sun: wealth hoarded to the harm of its owner."

Let's be clear here, the term "rich man" was used to describe a faithless person whose identity was tied to his wealth. But you can see how hoarding could easily prevent someone from the blessing of being generous, which in my book, falls in the "harm of its owner" category.

Not surprisingly, Scripture offers a solution for the hoarder. 1 Timothy 6:17 begins this way:

Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain...

If our confidence and security are in our bank account, we'll never be satisfied. (This same sentiment is in Ecclesiastes 5:10). People whose hope is in money are never satisfied; they live uneasy and restless lives.

The middle part of 1 Timothy 6:17 says, "...but to put their hope in God..." Whenever our hope is in something other than God, we'll inevitably be disappointed. So in that sense, money is no different than power, looks, status, IQ, athleticism, job, fame, and so on.

But my favorite part of the verse is the last part, when it concludes:

"...who richly provides us with everything for our enjoyment."

Wow! How liberating, especially for the hoarder. God wants you and me to enjoy whatever material blessings He's given us, whether big or small. This isn't to say that we should ignore the principles of the ant. And it certainly doesn't negate the need to give God the first fruits and to manage wisely what He's entrusted to us. In fact, this verse alone makes me want to increase my giving and improve my stewardship, if for no other reason than to show appreciation for his loving kindness in wanting me to enjoy his blessings.

Collectively, these verses tell me that being prudent by saving for the future and enjoying material blessings are not mutually exclusive. So as long as my hope is in God and I am a faithful and generous steward, I'll have no trouble enjoying that side of sour cream.

Posted by Matthew at 9:55 AM | Comments (0) | TrackBack
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Financial Literacy 101: How much should you save for emergencies?

Fourth in a series for
Financial Literacy Month

During National Financial Literacy Month, we're featuring a series of posts covering investing and personal-finance basics.

Here's post four — about having a sufficient level of savings for financial emergencies.

Before putting money at risk in the markets, you should first establish a savings reserve. Without savings to turn to during a financial emergency or a period of unemployment, you may end up being forced to sell your long-term investments just to make ends meet. Even worse, you might have to sell at a bad time (i.e., when prices have dropped).

How large should a savings reserve be? Financial planners generally recommend an amount equivalent to three-to-six months' living expenses. SMI has long suggested a reserve of at least $10,000, but we recognize one size doesn't fit all.

Let's run the numbers. According to the U.S Census Bureau, the average "married-couple family" had a gross income of $73,010 in 2008 (the most recent year for which figures are available). Technically, the Census figure is a "median" not an "average," representing the point at which half of all married couples are above this amount and half below (see income table here). But we'll use $73,010 as the "average gross" for purposes of this illustration.

When trying figuring how much to set aside in emergency savings, we're not actually trying to replace gross income, however, but after-tax income.

Here's why: A savings reserve is designed to cover living expenses in the event of a loss of income. You won't need to replace your total income because a certain percentage of your gross goes to taxes — taxes you won't have to pay if you're unemployed.

So from the gross of $73,010, we'll subtract an estimated 16% for payroll, federal, and state taxes. This leaves $61,327 in after-tax income, which translates to a need of $5,110 per month.

Of course, in an emergency, some normal spending — for entertainment, vacations, 401(k) contributions, etc. — can be postponed. As a result, we've estimated that only 75% of normal spendable income would need to be replaced from savings in the event of a financial emergency.

Therefore, a three-month savings reserve for this typical family would amount to roughly $11,500 ($5,110 x 75% x 3). A six-month reserve would total $23,000.

The table below shows target amounts for three- and six-month savings reserves at various income levels.

You can see that the $10,000 "rule of thumb" is a good initial target for a three-month cushion, but depending on where you fall on the chart, you might want to go higher or lower (but not too much lower).

Actually, it's better to prepare for longer than three months.

(For the table, we used a uniform 16% estimate for the amount of gross income consumed by taxes. Those with lower incomes should use a smaller percentage; those with higher incomes will need to use a larger percentage.)

It's wise to keep at least two month's worth of your emergency savings in a money-market mutual fund or a bank money-market account so you can access it quickly if the need arises. Beyond that it's okay to branch out into conservative bond investments. But recognize that if you need all your savings at once, you might have to sell your bond funds while prices are down.

Ultimately, the target size of your savings reserve will depend to some degree on your lifestyle and preference. Just don't make the mistake of thinking the need for a well-funded emergency reserve doesn't apply to you.

SMI's Financial Literacy 101 series

• Creating your own personal financial plan
• Save by paying yourself first
• Where to put your savings
• How much should you save for emergencies?
• The upside of index funds
• A simple and steady investing strategy
• Inside-out investing
• Making the 'right' investing decisions
• Your most important investing decision

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Financial Literacy 101: Where to put your savings

Third in a series for
Financial Literacy Month

During National Financial Literacy Month we're presenting a series of posts on basic principles of investing and personal finance. (Each post in the series can be identified by the orange character at right, working diligently on a financial plan.)

Here's post three — about choosing the most appropriate kind of account for different kinds of savings.

Money set aside for emergencies should be saved in a different type of account than money being accumulated for a major purchase years down the road. That simple and sensible guideline — different savings vehicles for different needs — is routinely ignored. Many people simply put all their savings in low-yielding bank savings account and leave it at that.

Consider the following range of choices instead.

Money Market Funds. A good MMF is a solid choice for an "emergency fund" — i.e., money that might be needed at any moment. MMFs provide instant liquidity through check-writing privileges.

True, MMF yields are at rock bottom right now, but for an emergency fund, you should be much less concerned with the return on your money than the return of your money. With MMFs you can get your money back quickly. As for safety, only one retail money market fund has lost money in the past 40 years.

Money Market Accounts. MMAs also work well for an emergency fund, and have the advantage of being insured (up to $250,000) by the FDIC.

The highest-paying MMAs are through online banks. Online MMAs let you create an electronic "link" to your regular checking account, giving you virtually instant access to your MMA savings in an emergency.

Certificates of Deposit (CDs). CDs require you to commit your money for a term of one month to five years. The longer the period you're willing to commit to, the higher the interest rate you'll receive.

CDs carry penalties for early withdrawal, so they're best used for funds you're confident you won't need until a specified future date.

Short-Term Bond Funds. If your savings won't be needed for two-to-three years, step up to higher-yielding short-term bond fund.

The downside: the prices of bonds owned by these funds can fall when interest rates rise. That makes them a somewhat risky proposition for savers with time frames of less than two years. If your savings goal is at least that far away, however, the higher yields of short-term bonds usually compensate for any near-term losses created by rising rates.

Mortgage-Backed Bond Funds. These funds, often referred to as GNMA (Ginnie Mae) funds, invest in mortgage-backed securities issued by the Government National Mortgage Association. Ginnie Maes are even more sensitive to interest rate changes than short-term bonds and can definitely lose money in the near-term, so a longer holding period is critical.

Historically, the higher yields of these bonds have eventually more than compensated for any short-term losses caused by rising interest rates. This can take time though, so only choose them if your holding period is at least three years.

A few things to keep in mind: any interest rate increases over the next few months will be good news for savers using MMFs and MMAs, while short-term bond funds will suffer initial losses. As for CDs, remember that buying now will lock you in at today's very low rates.

Although you need to be aware of how rate changes affect certain savings instruments, the easiest way to decide where to put your savings is to think about the time frame until you need the money. For money you may need right away, keep it in an MMF or MMA. For funds you probably won't need it for a couple of years, a short-term bond fund might be the best choice. For even longer time frames, consider mortgage-backed funds.

For more on this topic, see chapter 6 ("Investing Your Emergency Fund") and chapter 7 ("Investing Your Accumulation Fund") of The Sound Mind Investing Handbook (5th ed.) by Austin Pryor.

SMI's Financial Literacy 101 series

• Creating your own personal financial plan
• Save by paying yourself first
• Where to put your savings
• How much should you save for emergencies?
• The upside of index funds
• A simple and steady investing strategy
• Inside-out investing
• Making the 'right' investing decisions
• Your most important investing decision

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Financial Literacy 101: Save by paying yourself first

Second in a series for
Financial Literacy Month

April is National Financial Literacy Month — and at SMI we're doing our part with a series of posts on basic principles of investing and personal finance. (Each post in the series can be identified by the orange character at right, diligently working on his financial plan.)

Here's post two, offering practical ideas for building up your savings.

When it comes to saving, despite your best intentions, it's easy to rationalize putting it off until the next paycheck. One way to overcome this is to have some of your money put aside automatically before you have the opportunity to spend it. Here are two paths to automated savings:

• Sign up to have part of your paycheck (you decide how much) automatically deposited into a savings account at a credit union or local bank. It's easy, convenient, and offers useful discipline. Plus, your savings are insured and available for withdrawal without penalty whenever you wish.
• For a higher rate of return, set up automatic transfers from your checking account to a money-market fund (a type of mutual fund) or a money-market account (a type of bank savings account). Such transfers are relatively easy to set up, and you can have them made on a weekly, bi-weekly, or monthly basis.

If you're in your 20s, we suggest saving 5%–10% of your income. Initially, this will go toward building your contingency fund. Once that's in place, your savings can be used for a down payment on a house and other large purchases.

In your 30s and 40s, move up to a savings rate of 10%–15% of your income. Usually at this age, the primary use of savings will be to invest for retirement.

Many people believe they could never save 10% of their income! But let me ask you — what would happen if a cutback at work resulted in fewer hours and a 10% reduction in your income? Wouldn't you make the necessary adjustments in your spending so you could still cover the basics? Unpleasant though it might be, you would.

In the same way, saving a similar amount isn't beyond the financial capabilities of most families. Usually, it's a matter of having the willingness to sacrifice and make the necessary changes in lifestyle.

Adapted from chapter 5 ("Do You Have Adequate Savings?") of The Sound Mind Investing Handbook (5th ed.) by Austin Pryor. Copyright © 2008 by Austin Pryor.

SMI's Financial Literacy 101 series

• Creating your own personal financial plan
• Save by paying yourself first
• Where to put your savings
• How much should you save for emergencies?
• The upside of index funds
• A simple and steady investing strategy
• Inside-out investing
• Making the 'right' investing decisions
• Your most important investing decision

Posted by Joseph at 9:05 AM | Comments (0) | TrackBack
Category(s): Family Finances

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Financial Literacy 101: Creating your own personal financial plan

First in a series for
Financial Literacy Month

We suspect this sneaked up on you, but April is National Financial Literacy Month!

It's a fairly new observance, stemming from attempts by the JumpStart Coalition, founded in 1995, to improve financial literacy among American teenagers. Later, in unhappy recognition of "pervasive financial illiteracy among adults" (who apparently never learned what they should have when they were teens), the U.S. Senate passed a resolution (PDF) in 2004 in support of a Financial Literacy Month for all.

So, to do our part to help Americans become more financially savvy, we're featuring a series of posts during April focused on basic principles of investing and personal finance. Some will link to articles we've published in recent years.

Here is the first post in our series — on creating a financial plan.

What's the most common mistake people make when managing their finances? Making spending and investment decisions apart from a personalized financial plan. No matter how good your investing choices are, if they're made outside the framework of a larger plan, you're inviting trouble.

Imagine you're preparing to build your dream home. Over the years, you've accumulated scores of ideas that you'd like to see incorporated into it. Before construction begins, you sit down with your builder to review your design goals.

You ask him how long before the blueprints will be ready, but to your surprise, he tells you he doesn't work that way. Rather than planning everything ahead of time, he prefers to develop the design as he goes along. He'll keep your ideas in mind, but "blueprints are so restricting," he says — he wants to have the freedom to be spontaneously creative as the house is being built.

Most of us would be reluctant to hire a builder like that! When building a house, we recognize it's a good thing to have a carefully considered blueprint for action before taking on a challenging task. In fact, the more important the project (e.g., having open heart surgery), the more emphasis we place on careful planning.

Unfortunately, too many people use the "we'll work out the details as we go along" approach when it comes to one of the most important projects they'll ever take on — building a secure financial future. [More...]

SMI's Financial Literacy 101 series

• Creating your own personal financial plan
• Save by paying yourself first
• Where to put your savings
• How much should you save for emergencies?
• The upside of index funds
• A simple and steady investing strategy
• Inside-out investing
• Making the 'right' investing decisions
• Your most important investing decision

Posted by Joseph at 11:35 AM | Comments (0) | TrackBack
Category(s): Family Finances

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What do bugs and money have in common?

Bank deposits were up 13.5 percent, or $641 billion, in 2009, according to this piece on MoneyRates.com. That's a prudent move. Many Americans were caught short by the recent financial turmoil. Now, we seem to be learning to save again.

But it gets even better. A joint survey by MoneyRates.com and GetRichSlowly.com found that out of the 1,629 people responding to the poll, "30% reported saving 25% or more of their monthly income, and 34% reported saving between 10% and 25%."

Nice. Granted, these are money-minded people frequenting financial websites, so they are likely to be in the over-achiever crowd. Still, it's encouraging.

Sound Mind Investing is a big believer in setting aside emergency funds and building accumulation funds for future purchases. We're just sorry it has taken a national financial nightmare to get some people motivated to save.

One reason we have always encouraged saving is because the Bible encourages preparing for the future. Proverbs 21:20 says, "In the house of the wise are stores of choice food and oil, but a foolish man devours all he has" (emphasis added).

Of course, saving for ourselves must be kept in balance. Yes, God "richly provides us with everything for our enjoyment," we are told in 1 Timothy 6, but we're reminded of that provision in the context of being generous toward others. Furthermore, in James, we're warned against presuming on the future. That provides yet another needed balance to our savings and investment efforts.

But save we should. In fact, the Bible encourages us to save by pointing us to the most humble of insects, the ant. Proverbs 6:6-8 says, "Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest" (emphasis added).

Hmm. Are you and I as smart as a bug? It doesn't take a financial (or natural) disaster to get the ant preparing for the future! God hard-wired it into the ant's DNA. Maybe saving doesn't seem hard-wired into you, but you can learn how to do it. Start saving now!

And before your flick a pesky ant off your picnic blanket, at least stop to admire his preparation and determination in providing for the future. He may be doing a better job than you are.

Posted by Matthew at 8:35 AM | Comments (0) | TrackBack
Category(s): Family Finances

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What do your finances look like?

If you had to visualize what your finances looked like, what would come to mind?

• Water down the drain? (It's slippery, moves fast, and it's almost impossible to hold in place.)
• Maybe one of those barrels of peanuts at a restaurant? (A few shelled peanuts in a pile, a handful "reserves" still in the shell, but mostly lot of remnants of what use to be — i.e., not at lot there that's worth much.)
• Perhaps Rich Uncle Pennybags from Monopoly? (Financial life is good, you have money to throw around, and plenty more where that came from!)

            

Before you answer, maybe you should visualize it on a calendar, like Matt did from Steadfast Finances. Matt had the great insight to look at how long he works to pay for his different obligations and then plotted the findings on a calendar (this is similar to Tax Freedom Day, but rather than freedom from taxes, this is from your stuff... perhaps a "tax" in its own right). Here is what he found:

Here's what he learned:

1. I bought way too much house on a single income.
2. I was two paychecks away from defaulting on a loan (if I couldn't borrow money from family).
3. I wasn't living beyond my means, but I was very close!

What an eye-opening experience this was for him and would be for most of us should we take the time to do it. You just might find out that Rich Uncle Pennybags better plug the drain or he won't be worth peanuts.

Posted by Matthew at 9:05 AM | Comments (0) | TrackBack
Category(s): Family Finances

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A newbie's first look at real couponing

Of all the different ways we've learned to save money, couponing has been low on the list. But of all the different irrational things that scare me, couponing has been high on the list... higher than the fear of Big Foot, stuck crossed-eyes, and breaking someone's back by stepping on a crack — combined.

Why? Because of all the work you hear it takes, the tricks involved, and the learning curve.

I'm more of a good-deal finder or luxury cutter type of a guy. I mean sure, if we're mailed some coupons, we'll thumb through them and keep those we might use. But I'm talking about actively and intentionally using coupons to pocket substantial savings — not just saving $5 off the purchase of two combo dinners at El Restauranto.

Maybe I should change my mindset. Maybe I need to think of couponing as a challenge and not a chore. Besides, according to this piece in the Wall Street Journal, couponing is the newest extreme sport.

[D]iscount devotees have formed vast online communities that collectively unearth and swap digital, mobile-phone and paper coupons. The cleverest shoppers combine dozens of coupons and go from store to store buying items in quantity, getting stuff free of charge.

Of all the different systems out there, the one that kept coming to my attention was The Grocery Game. I first learned about The Grocery Game from SMI friend and frugal guru Mary Hunt.

In a nutshell, you pay a bi-monthly fee to have access to sales lists at various stores. The lists tell you how to combine coupons (which you've either kept from your Sunday paper or clipped online) to buy items at huge discounts, sometimes getting them for free. The idea is to build a stockpile of goods. This can take some time (and space). But once the stockpile is built, you'll have on hand what you need and it takes fewer purchases (which again, will be on sale) in the future to maintain what you keep at home.

Sounds doable. Hey, it's even called a "game." I like games. So right now we're in our 4-week free trial period. I'll report back to update you on my savings.

And what kind of savings can I expect? I have a friend whose been doing The Grocery Game for more than six years. He said to me, "If I don't save 40-50% off my groceries, I feel like a failure."

Combine savings like that and The Grocery Game's supposed ease of use and, by comparison, Sasquatch just got a little scarier.

Posted by Matthew at 8:12 AM | Comments (0) | TrackBack
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Advantages of using a credit card

Be it the unintended consequences of the CARD Act signed into law last year making things worse for consumers not better, the controversial safety and hidden fee issues, or the oft-recited studies showing you spend typically 10-30% more when paying with plastic rather than cash, credit cards are getting a lot of bad press these days.

And all this may be fine and true, but there are some "free" upsides to credit cards. One of my favorites is Purchase Protection:

What it does: If something you bought with your credit card is damaged or stolen within 90 days, you can receive a refund of the purchase price.

The catch: This protection has many exclusions, including items that are lost without any evidence of a wrongful act or are stolen because of a lack of due diligence. Used, antique and collectible items generally are not covered.

Value: Refunds limited to $300 (American Express), $500 (Visa) or $1,000 (MasterCard) per item. American Express has an additional program with refunds of up to $1,000 on certain types of items, including clothing and electronic equipment. Caps on the total refunds received by cardholders also apply (e.g., a total of $25,000 per cardholder with MasterCard or $50,000 annually with American Express).

Now this reason alone might not be enough to get the cash-only crowd interested, but when combined with other perks like free roadside assistance, lost-luggage reimbursement, and extended warranties, there is a case to be made for using credit cards in moderation for specific purchases. But don't even consider this if you struggle to exercise financial self-discipline. The best perks in the world aren't worth it if the trade off is a load of debt.

Posted by Matthew at 9:33 AM | Comments (0) | TrackBack
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Do you need it — or just want it?

As we become a more and more data-centric society, all that information consumption not only eats up our time but also our money. And if you're anything like me (and for your sake I hope you're not), it's easy to fool yourself into categorizing a "want" as a "need."

Take, for instance the cell phone. Until January 2009, I was an anti-cellphone-ite, a breed on the doom of extinction. My wife, my son, my nephews — even my mom — had a cell phone. I didn't want the extra expense, the extra interruptions, and the extra cargo to lug around (I had trouble enough not forgetting my wallet and keys).

But I eventually caved, in part because my wife wanted me to have a cell phone, and in part because of the convenience factor. And if I was going to schlep one of these around everywhere, I wanted a good one... so I got an iPhone.

With all the things it can do, it's closer to 1-part convenience, 3-parts entertainment. There's nothing wrong with that, as long as I'm honest about it when factoring it into our budget: this is 75% an entertainment-budget item.

This leads me to a New York Times' piece on the cost of home entertainment. There are some interesting figures to consider:

It used to be that a basic $25-a-month phone bill was your main telecommunications expense. But by 2004, the average American spent $770.95 annually on services like cable television, Internet connectivity and video games, according to data from the Census Bureau.

By 2008, that number rose to $903, outstripping inflation. By the end of this year, it is expected to have grown to $997.07. Add another $1,000 or more for cellphone service and the average family is spending as much on entertainment over devices as they are on dining out or buying gasoline.

And those government figures do not take into account movies, music and television shows bought through iTunes, or the data plans that are increasingly mandatory for more sophisticated smartphones.

Incredible really. All this got me wondering 1) how bad the damage was at the Pryor household and 2) where could we cut costs on digital services yet still keep most of the functionality?

I st