Free Money Finance

Here's Another Broke Multi-Millionaire

Adding yet another person to my list of people who made a bundle of money and yet are broke. This one almost seems unfair since there are probably a million or so sports figures that fall into this category. But we'll let this one (about former football star Travis Henry) serve as our representative for all of the others today. The details:

“I love all my kids,” he said in the interview, but asserted he could not afford the designated amounts, estimated at $170,000 a year by Randy Kessler, his Atlanta lawyer. Kessler said Henry was virtually broke.

“I’ve lost everything in this mess I’ve gotten myself into,” Henry said.

The Denver Broncos gave Henry a five-year, $25 million contract in 2007. Cut last year by the team, which cited injuries and off-the-field commotion, he received only $6.7 million.

Henry is seeking to modify child-support obligations. Some mothers and their lawyers will have none of that, saying he has squandered a small fortune on luxuries like cars and jewelry.

“I feel sorry for the guy, trust me,” Wellon said. “On the other hand, when you take those kind of actions, there are consequences. He could have taken care of the money.”

Henry argued that, within the context of richly paid athletes, he was not out of line. He contended that he owned no more than three vehicles at once and figured he had spent $250,000 on jewelry. “That ain’t a lot,” he said. Nevertheless, he was hoping to pawn some jewelry to pay off one of many debts and gain freedom.

If there were excesses, Henry said, they involved his immediate family, like picking up travel expenses to games during his seven-year career, highlighted by three 1,200-yard-plus seasons.

It's really simple math: make a ba-zillion dollars and spend less than that, and you're moving your net worth in a positive direction. Make a ba-zillion dollars and spend more than a ba-zillion dollars, and you're going backwards.

I'm not really surprised anymore by the actors, musicians, sports figures, lottery winners, artists, and the like who think they have an endless supply of money, spend it all, and end up broke. Seems like a regular occurrence these days. Too bad someone close to them wasn't around to give them solid financial advice.

Update on Mogul

So a week or so after I wrote about the real estate "game" Mogul, we decided to try it out. More accurately, my wife and daughter tried it out while my son and I thrashed Liverpool (we play Man United) in FIFA 09. My daughter (the smarty pants) wanted to play the game and I told her that if she read the rules and learned how to play, then I'd play. She somehow coerced my wife into this effort while my son and I quickly disappeared to pursue a more brainless activity.

After about an hour and a half (during which time my son and I crushed much of the Premier League with our now dominating Manager Mode team), I heard the cry of "uncle" from the other room. As we all sat down soon thereafter, I got their thoughts on the game. Here's what they had to say about Mogul:

• It's very, very, very complicated. It is Monopoly on mega-steroids. It makes chess look easy. It's certainly not a fun sit-down-with-the-wife-and-kids-for-a-fun-evening sort of game (FYI, our favorite games currently are Apples to Apples, Go to the Head of the Class, and Uno.)

• It's very, very, very realistic. From what they could tell (they're not real estate investors), the game did a great job of simulating many of the decisions that go into real estate investing as well as the general trials and tribulations of life (some would call this luck) that can bounce you one way or the other.

So there you have it -- something you could have probably guessed about a $100 game: it's more of a teaching tool than a game played for fun/enjoyment. The key audience for this is someone who wants to learn more about real estate investing, not someone looking for a fun time (though I'm sure it could be fun for those learning.) It's closer to an investment in a seminar or class than it is buying a game, so looked at that way, maybe $100 isn't that bad.

If you're interested in winning a free game (hey, it's a $100 value!), sign up for my newsletter. I'll be giving away a game or two via email over the next few weeks.

How to Weather an Inflationary Storm

The following is another guest post from Free Money Finance reader Rod Ferguson.

It's been a while since I wrote for Free Money Finance; with the shenanigans of last spring, I spent more time focusing on preparing for what is happening today than trying to show people what we were heading towards.  Recently (March 18th) the Federal Reserve announced it was going to embark on a program of "quantitative easing" – a economist term for "inflate the currency" - in the form of buying more Treasuries and shifting it's asset base to absorb more toxic mortgages.  This program will reflect, almost directly, in the monetary base.

As you can see, we've already doubled it in the last few months and another rough doubling will, when the new paper begins circulating, translate to pretty severe price inflation.  Add to that the rumbles in the world about abandoning the USD as a reserve currency and moving to a fixed basket of currencies, and that spells serious trouble for the dollar.

Will this mean hyperinflation? I still believe probably not, but we're a lot closer to the condition than we were last year.  Even if we only hit inflation levels of 10% or 15% (the same as the 70's), the impact to daily lives will be noticeable.  Most people are not prepared for this, and with the recent disinflation (the drop in some prices and credit tightness that people are mistaking for deflation), many are even less prepared than they would have been a year ago.  I've spent the last few years preparing for it, and decided to spend some time outlining what I've done for those who might be interested.  I'll warn you that some of the steps I've taken and would recommend fall into what could be considered as "tin-foil-hat-wearing" mentality, but as the old saying goes, you're only paranoid if they aren't out to get you.  If we've learned anything in the last few months, its that the old rules are gone and new ones are being made up as we go along.

1) Food:  we've been stockpiling about a month's worth of the normal food items we consume.  This acts both as an inflation hedge and as a buffer for distribution interruptions.  For inflation, if you shop smart (as FMF constantly states) you can buy food at a lower cost and consume that food while avoiding higher costs and waiting for another dip in price.  Distribution interruptions are a common occurrence during economic turmoil; I don't know if anyone else has experienced this, but a few times we've gone shopping there is a big empty space on the shelf where the food we wanted to buy normally resides.  Sometimes, the shelf isn't stocked for a week or more.  We don't buy anything we don't normally consume and rotate the food to ensure we consume the oldest items first.  Even through disinflation, the system has netted us a lower cost for monthly food overall (by being able to wait for sales and discounts), and reduced our number of shopping trips per month in half.  If you decide to do the same, be certain to check your expiration dates; you'd be amazed at how long some of our food lasts (chips - about 3 weeks, tuna - about 3 years).

2) Gardening:  while we haven't done any gardening over winter (naturally), we're setting up for a larger garden than we have had in the past.  We've dug out our old canning supplies and plan on fleshing out the set to start canning this year.  Growing your own food is the most inflation-independent method for feeding yourself; you only have the cost of seeds and the labor to maintain and harvest your garden.  And, the food tastes better to boot!  We employ the square foot gardening method that yields about 2-3 times the produce as a conventional linear garden.  If you plan on gardening and don't already know how to can, you might want to consider looking at your community calendar for a class or getting a book that will teach you; the best garden in the world won't be as useful unless you can store your food longer than the week or two that it'll stay fresh naturally.

3) Money:  we have little in cash savings right now; just enough to cover about a month's expenses.  The rest of our savings are in hard assets, mainly metals and land.  As I've written before, metals tend to maintain purchasing power throughout inflation; an ounce of silver will generally buy about 4 gallons of gasoline regardless of what the price of the silver or gasoline happens to be.  We still maintain foreign currencies and stocks, but those are taking an ever-decreasing percentage of our overall portfolio.  If you wish to start converting your wealth, physical bullion and a safe or safe deposit box are your best avenues, although it's getting harder to find physical bullion these days.  Expect to pay a premium over spot when you do - the time to buy cheaply has passed.

4) Maintenance:  we've stopped replacing and started repairing things that wear out or break.  In the past, if the washing machine broke or the microwave stopped working or a pair of otherwise good shoes blew a seam, we'd replace it.  Now, we get a repairman out or attempt to repair it ourselves (I'm a decent leatherworker - one of my hobbies.)  We only replace if the cost of repair would exceed a replacement, and we go without using whatever it is until we find a sale.  It helps to have goods that are already in working order and can be repaired, but the market for used appliances especially is growing.  Craigslist, Freecycle and your classifieds section in the paper are your best routes to research.

5) Miscellaneous:  we purchased some land (part of our long-term retirement plan) that we were going to develop over the next three years (road, well, septic, cabin, etc,) that we are now going to let sit for those three years.  Our plan now is to relocate some of the saplings on the property to fill out the gaps in the unforested parts of it.  This will allow us to save more by not spending any more (the trees are already on the property, we're just going to move them around) except in labor; we'll also get the added benefit of more mature trees when we do finally use the land.  This will adjust our retirement plans slightly, but we both feel it's a necessary evil with the uncertainty in the economy now.

So, in short, we're stockpiling what we need and holding off on what we don't while converting our wealth into something that will still have value when this is all over.  There are a lot of things we were already doing that are natural inflation buffers:  eating at home 6-7 days a week, carpooling, shopping for bargains, waiting to purchase until we felt prices were reasonable, buy cars and drive them into the ground, keep the thermostat down in the winter and up in the summer, etc. - many of the things that FMF suggests.  But, last year I thought it best to "kick it up a notch" and have been preparing while it was still possible to do so easily.  It's still not too late, however; most of the inflation analysis is saying we'll start feeling it between 6 and 12 months from now (granted, that was before the Fed announcement, so I'd imagine that range might be dropped a few months).

Consumers Start to See the Light on Store Brands

Here are two pieces dealing with store brands and how consumers are finally starting to check them out seriously due to the bad economy (after all, saving money appears to be "in" these days.)

The first is from Yahoo and has these interesting comments:

Some 64 percent of shoppers in 2008 said they often or always buy a store brand rather than a national one, according to the Food Marketing Institute, an industry trade group. That's up from 59 percent the prior year.

Kroger Co., owner of Ralphs, Fred Meyer, Food 4 Less and other chains in 31 states, saw sales of its in-house brands hit a record 27 percent of total sales in the most recent quarter.

These numbers seem really, really high to me. Do 64% of shoppers really often or always buy a store brand rather than a national one? Seems like the numbers should be more like 30% to 40% at best. But the Kroger numbers must be good -- and 27% is a HUGE number.

The second article talks about how Walmart is doing all it can to encourage people to buy its store brand. The highlights:

Wal-Mart is stepping up the competition to draw cost-conscious shoppers, promising that store-brand products from cereal to cookies will be tastier, smell better and look more attractive.

The world's largest retailer outlined plans Monday to reformulate hundreds of items in the Great Value store brand that it says is the country's biggest food brand by both sales and volume.

Wal-Mart, responding to the increasing popularity of store-brand products among cash-strapped consumers, is also introducing nearly 100 new products like fat-free caramel swirl ice cream and thin-crust pizza as it tries to better compete with national brands.

The popularity of store brands has soared recently as the economy tanked, with shoppers looking to stretch their dollars, especially as food prices have soared.

The Private Label Manufacturers Association said a basket of 40 average store-brand products runs about 30 percent to 35 percent less than a basket of comparable national brands.

Yep. Why pay 30% to 35% more when a store brand is just as tasty? And since almost all of them offer a like-it-or-bring-it-back guarantee, why not try some of the store brands if you haven't already? If you spend $5,000 on food and shop mostly national brands, switching to store brands could save you $750 a year (assuming half of your purchases are where there are store brand alternatives and you save 30% on that amount.)

I've talked about using store brand before (we probably buy more store brand items than national brands -- and have been doing so for years), so if you want some additional thoughts on this issue, check out these posts:

• Generic and Store Brand Products -- Much Cheaper and Just as Good (Or Even the Same Thing!) as National Brands

• Save Big Money by Using Generic/Store Brands -- Even I Didn't Know the Savings Were This Big!!!

• Health and Beauty Aids: Walmart versus Costco, Kirkland Brand versus Equate Brand -- Which is the Best Deal? 

The Unrelenting Power of Compound Interest

The following is an excerpt from the book The Sound Mind Investing Handbook - A Step-By-Step Guide To Managing Your Money From A Biblical Perspective 5th Ed. FYI, the levels referred to below are the various levels within the Sound Mind Investing strategy. Level 1 is getting debt free, Level 2 is saving for future needs, Level 3 is investing your surplus, and Level 4 is diversifying for safety.

Sometimes, Level Two folks feel they can’t do anything very exciting from an investing point of view.

The folks at Levels Three and Four seem to have all the fun. Meanwhile, you’re still trying to save $10,000 for those “contingencies.” It can seem like an impossible task. If you feel that way, you’re short-changing the impact you can make. The power of compounding works to help you as you save.

For example, let’s assume you’re starting today with nothing in the bank. If you can save $10 each week and put it in a savings account, it will grow to $10,000 in 14 years. Admittedly, that seems pretty far away. How about working harder on your budget and increasing your savings from $10 a week up to $30? That gets you to your $10,000 goal in just 5.7 years. That’s much better. And if you start out with $4,000 in the bank rather than from scratch, the time required drops to only 3.2 years.

You can alter the variables to fit your particular situation (see table at left). Just keep in mind that every dollar in additional savings and interest earned contributes to the compounding process and gets you to your destination that much faster. You can achieve your Level Two goal sooner than you think through commitment and careful planning.

Many years ago, I came across a book with a rather unforgettable title: Money Makes Money, and the Money Money Makes Makes More Money.

As you might expect, it was about the power of compound interest. The word “compound” refers to something composed of two or more parts. Familiar examples include a chemical compound (a substance composed of two or more elements) and a hospital/medical compound (a building where two or more functions, like surgery, doctors’ offices, nursing care and laboratory, are combined into one large facility).

In financial terminology, “simple” interest refers to interest being paid on the principal only. Assume you deposited $1,000 in a one-year bank CD that paid simple 7% per year interest. After the first month, you would have “earned” a small amount of interest, around $5.83. But the bank isn’t going to pay it to you until the year is up; it is going to hold onto it. And even though it’s yours, it is not going to pay you any interest for having it around to use over the coming year. The bank is obligated to pay you interest only on one part of your account—your principal. After the year, you’d have earned $70.00 in simple interest.

Now, let’s change the terms of the CD to one of “compound” interest, where interest will be paid on both the principal and the monthly interest earned as the year goes along. The first month, the bank pays you only on your principal, just as before, because you haven’t earned any interest yet. But after the first month, it credits your account with that $5.83. Now, for the coming month, you’re going to earn interest on $1,005.83 instead of your original $1,000.00 of principal.

The second month you earn $5.87 in interest, only 4¢ more. By the end of the year, you’ve earned total interest of $72.29. That’s $2.29 more than simple interest would have paid, and it came your way just by changing one word in the CD agreement and without increasing your risk. Suppose we change the CD to pay weekly compounding. Instead of giving you credit for your earned interest just once a month, the bank will do it once a week. It turns out that at year’s end you’ve earned $72.46 in interest.

Daily (or “continuous”) compounding has become the most common offer. If we used daily compounding in our CD example, the total interest earned would have been $72.50. That’s the same as a simple interest rate of 7.25%. So, by changing from simple interest to daily compounding, you would have effectively improved your return by ¼% per year.

Does it seem too small an amount to really matter? For just $1,000 and for only one year, perhaps so. But when you consider how much you will have on deposit in a savings account over your lifetime, the difference of ¼% per year in return can amount to tens of thousands of dollars.

The unrelenting power of compound interest is one of your greatest investing weapons.

Consider this updated version of the saga of Jack and Jill. Jack started a paper route when he was eight years old and managed to save $600 per year. He deposited it in an IRA investment account that earned 10% interest. Jack continued this pattern through high school and “retired” from the paper-
delivery business at the ripe old age of 18. All told, he saved $6,600 during that time. He left his savings to compound until he reached 65 and never added another dollar during the entire intervening 47 years.

Jill didn’t have a paper route, but waited until her post-college days to start her savings. At age 26, she was sufficiently settled to put $2,000 into her IRA retirement fund. This she continued to do each year for 40 years. She also earned a 10% compounded return on her savings. Now, the question is which fund was larger at age 65—Jack’s IRA into which he put $6,600 or Jill’s into which she put $80,000?

Surprisingly, Jack is the winner. His IRA has grown to more than $1,078,700, an amount equal to more than 162 times what he put in as a child. Jill also did quite well with hers, which grew to $973,700. But Jack’s earlier start, even with smaller amounts and deposits for far fewer years, was too much to overcome thanks to the tremendous power of compounding. That’s because when Jack was 26, the age at which Jill began her IRA savings, the interest earned in his account was more than the $2,000 Jill was putting in. The moral is: invest early and often—even small amounts can make a big difference!

How to Become a Mystery Shopper

In my list of 20 ways to make more money, I suggested that you could earn some extra cash by becoming a mystery shopper. Then a couple weeks later, I ran into the Bargain Babe's interview with a real-life mystery shopper who told how to get started doing this:

All at one time sign up for 10 mystery shopping agencies because you never know which ones will have shops in your area. The more you sign up, the more shops are going to come your way. Start small, do a $10 or $15 assignment to start off with. If you don’t follow their directions they’re not going to pay you. So if you’re not a detail-oriented person or follow directions well, mystery shopping may not be for you.

So basically sign up with as many companies as you can, take the basic assignments, and work your way up the ladder. Sounds a lot like the process for earning money as a writer.

The money for mystery shopping can be pretty good too. The person interviewed said she easily made $300 a month for about 6 hours of work. $50 per hour isn't bad at all for a side/extra income, huh?

Filed Your Taxes Yet?

A sort question for today as we get ever closer to April 15:

Have you filed your taxes yet?

Ours have been to my CPA for three weeks now and we'll probably have everything wrapped up in a week or two -- about a week before the deadline.

How about you? Are you one of those February 1 early-bird filers or are you planning your annual before-midnight trip to the post office on April 15?

Win a Free Entertainment Book!

I've written about how to save money with an Entertainment Book and now it's your opportunity to win one and try it for yourself!

Here's how it will work:

1. All you need to do to enter is to leave any comment on this post.

2. In addition, you'll get a bonus entry if you follow me on Twitter (all my Twitter followers are automatically entered in the giveaway.)

3. Sometime in the next few days, I'll select a winner at random and announce with a new post that a winner has been selected.

4. It will be the winner's responsibility to email me their contact information.

5. I'll then send the winner's information to the Entertainment Book people and they'll work out getting the prize delivered.

A few rules for these giveaways:

1. I will be the complete and final judge.

2. Legal disclaimer: I can not guarantee safe delivery of the items. I've worked with the Entertainment Book people a bit and they're great, so I'm sure it will all work out smoothly. That said, I won't be held accountable if there's a mess up.

3. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. I won't track down the winners -- it's your responsibility to come back and see if you won.

4. Local laws, rules, and regulations apply.

5. Winners are restricted to the US and Canada.

Good luck! Post a comment below for your chance to win!

Free Money Finance March Madness, Elite 8, Posts 5-8

We're now down to the Elite 8 of Free Money Finance March Madness (if you wonder what's going on in these posts, see my article announcing March Madness and/or click on my March Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword(s) after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1 - Saving; Game 2 - Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 3

• 10 Things I Have Learned About Money (Learned) - Since I started writing about personal finance  a year ago I've really come to realize a lot of things about money. Some of them are basic, but some of them are life changing.  Here is a rundown of the top 10 things I've learned about money in the past year.

VERSUS

• Why you can't trust real estate agents when buying a house (Trust) - I really liked this post because it was a lot of fun to write and I know it probably helped a few people rethink their relationship with their real estate agent.

GAME 4

• A Story About Banks; They Are Not In The Real Estate Business (Banks) - This is the story of two men who had their dreams: one wanted to make money from his own farm and the other wanted to make money from the others through lending. By reading this story, you will understand how banks got into so much troubles.

VERSUS

• The College Student Debt Machine:  A National Disgrace (Disgrace) - This post exposes the shameful and often ignored failure of colleges and universities to control their own budgets.  Concurrently, these same colleges freely encourage their students to use student loans to finance the ever increasing costs to attend.  With no one held accountable, young adults graduate with crushing debt that takes years to repay.

The Story of Joseph

For those of you new to Free Money Finance, I post on The Bible and Money every 
Sunday. Here's why.

I've blogged a lot about spending less than you earn but lately have been talking a good 
deal about this concept's close cousin "save in times of plenty for times of want." In secular terms, this means "get an emergency fund." From a biblical standpoint, it means to take action on the wisdom of developing a surplus.

As I've addressed this issue on Sundays, several readers have commented about how the current economic times we're in reminds them of the story of Joseph. For those of you not familiar with this biblical story (found in Genesis 41), here are the highlights:

• Pharaoh (king of Egypt) has a dream -- none of the magicians and wise men of Egypt can interpret it.
• Pharaoh's chief cupbearer remembers a man from prison who could interpret dreams.
• Pharaoh send for this man (Joseph.)
• Joseph interprets the dream, saying that there will be seven years of plenty followed by seven years of famine.
• Joseph advises Pharaoh to appoint a wise man to store up in the years of plenty for the later seven years.
• Pharaoh notes that there's no one wiser than Joseph and makes him second in command.
• Joseph proceeds to devise a plan for storing a boatload of food up during the seven years of plenty.
• In the seven years of want, Joseph sells food to the citizens of Egypt and to neighbor countries, making Pharaoh massively wealthier than he was before.

FYI, if you want a rather comical version of this scenario -- though not biblically accurate 100% -- check out these two videos featuring a young Donny Osmond as Joseph here and here.

This story is a GREAT illustration of why you should save up in times of plenty -- because there WILL be less prosperous times, and you'll need your savings to help you manage. People who applied this wisdom over the past years aren't nearly having as tough a time these days as those people who spent all they had during the good times. And the key to it all? Spending less than you earn to create a surplus and using that surplus to create an emergency fund.

I know, I know. It's simple to say but not easy to implement. That said, if you want to have a solid financial foundation, it's vital you make the effort to create a surplus. Otherwise, you'll be left wanting when the years of famine arrive.

Negotiation Made Simple: A 7-Word Weapon of Your Own

I receive the You Need a Budget newsletter and in a recent edition, Jesse had a good suggestion I wanted to share with you all. I emailed him and he said it was fine, so here goes. (BTW, YNAB has started a new savings area you all might want to check out.)

Oh, I wish I could take credit for this, but it was actually based on an interview of Richard Paul Evans that I heard on the Glenn Beck show while I was driving around the other day.  Glenn Beck described it as:

"Seven words that will change your course, seven words that will change not only I believe your financial future but also the course of your life."

Those 7 magical words?  Is that the best you can do?

Period.

Embrace any silence that may follow.

Use this all over the place.  Use it at restaurants, retail outlets, hotels, airports -- everywhere.  Evans says it's a rule for every one of his staff members to use that line whenever they're purchasing anything.  They're seven harmless (but powerful) words!  They'll cause no embarrassment, you'll feel no pain, and you'll likely end up saving a bundle.

What you'll find happens nine times out of ten is that the person will come back (after having spoken with a manager or whatever) and offer you some percentage off, and then apologize for not being able to offer a steeper discount.

Do this in places where negotiating just never happens.  Walmart.  Gap.  Target.  You will be amazed at what happens!  And at the mom and pop shops you'll find an even easier time being able to talk to the person that can actually call a few shots. 

Is that the best you can do?

If you're looking for a full-on thesis regarding negotiation, this little email won't be for you.  However, the excellent book Gettingto Yes: Negotiating Agreement Without Giving In will certainly suffice.  It is a great source if you find yourself wanting to improve your negotiation skills.  I highly recommend it.

I think I have a new favorite seven-word phrase. ;-)

Anyone out there use this now? What are your results?

Why the Roth Conversation Is A Bad Deal For You

The following is a guest post by Neal Frankle from Wealth Pilgrim.  
 
Some very smart people advocate converting your IRA to a ROTH right now but I can’t understand why.

To be sure, if you convert your traditional IRA into a ROTH, your distributions from the ROTH will be tax free (assuming you had the money in the account for at least 5 years and you are over 59 ½) and you don’t even have to take distributions if you don’t want to.

With a Deductible IRA, you must pay taxes when you make withdrawals and the withdrawals are mandatory.

That’s all in the ROTH’s favor of course.

On top of that, account values are very low right now.  So even though you’d pay taxes if you convert to a ROTH, the taxes are lower because of the depressed values.

Sounds like a no-brainer in favor of converting….right?  Wrong.  It’s far from a no-brainer…..its very much a “brainer” in fact.

Let me explain by way of example. Assume the following:

1. You are in the 30% tax bracket (both before and after you retire).
2. You have $100,000.
3. You will generate retirement income from your account starting in 20 years.
4. You will earn 8% on your account until you retire.
5. You will earn and withdraw 5% of the value of your account starting in 20 years.

	Traditional	ROTH IRA
	IRA	Conversation
Initial IRA Investment	$100,000	$70,000
Rate of Return	8%	8%
Value in 20 Years	$466,000	$326,000
Withdrawal Rate	0.05	0.05
Gross Income	$23,300	$16,300
Percentage to You After Tax	70%	100%
Net to You	$16,310	$16,300

The first column illustrates what happens if you don’t convert your IRA.  We assume that this person’s total net worth is $100,000 and it’s all in his IRA. He invests his $100,000 at 8% for 20 years.  It grows to $466k which generates $23,300 in annual income on which he pay taxes and is left with $16,300 in annual income.

The second column illustrates the poor sap who converts to a ROTH.  This person starts out with $100,000.  He had $70,000 in an IRA and $30,000 in a checking account.  He converted the $70,000 to a ROTH and needed to write the Treasury a check for $30,000 to pay the tax. (Had he paid the tax from the Traditional IRA, the comparison would even be more lopsided against conversion).  So his ROTH is $70,000 and his checking account is empty.  He also grows the money at 8%.  After 20 years the account grows to only $326k and that only earns $16,300 but he takes that money and pays no tax on it.

As you can see, the income amounts are just about the same.  So why do I say that the Conversation is a bad deal?  Two reasons:

1. If you keep your traditional IRA, you get the tax break now.  If you go with the bird in the bush (otherwise known as the Roth IRA) all you get is hope that you’ll get a tax break at some point in the future -- maybe 20 or 30 years from now. You get to spend the next 20 years praying that Congress doesn’t change its mind.  Well…..after all….they’ve never changed the rules before….right?

2. Even though you MUST pay taxes on the ROTH conversion, you may actually never pay taxes on the Traditional IRA. Think about it.  What if you never withdraw the money? Even though you do have a required minimum distribution amount, you may actually outlive the IRA.  It happens all the time.  And if it does, you can pass the IRA to your beneficiaries and stretch out that tax deferral for decades to come.

The only time you might want to choose to convert is if:

a. You are in a low tax bracket now.
b. You speculate that your tax bracket will be much higher when you retire.

Instead of making this decision based on how much tax you’ll end up paying, make the decision based on which will create the most income for you over your lifetime -- net of taxes of course.

The example above shows that the net cash flow to you will be about the same regardless of the decision you make. That being the case, why take the chance that Congress will change its mind?  It just doesn’t pay.

Reminder: Benefits are a Significant Portion of Your Pay

Yahoo reminds us that benefits can make up a significant portion of our annual compensation saying:

If you're a full-time employee, your company is quite possibly paying 30 percent more money than you see on your pay stub, according to the averages found by the Bureau of Labor Statistics. If you're a freelancer on the other hand, you might be able to raise your rates and still be cost-effective compared to a full-time employee.

They also list the benefits and what percentage they can add to your salary as follows:

• Health Insurance Benefits, + 11%
• Social Security, Medicare and Other Insurances, + 8%
• Retirement Plan, + 6%
• Vacation, Sick Leave, Personal Time, + 7%
• Other Less Common Benefits, + 1-10% (Stock Options, Company Cars, Gym Memberships, Lunch, Coffee, Snacks, Bus Passes)

This is why you should look at TOTAL compensation when considering a new job. If not, you may end up with a higher salary but actually making less in the end because your benefits are lower.

Once in my working career I had a job offer for "more money", but the benefits were significantly lower (plus it was a higher cost-of-living city), making the new job a good amount below the present one in total compensation. I explained this to various people at the company, but they just didn't get it (or didn't care.) They focused only on the salary portion and kept reiterating that I was making more working for them. Needless to say, I passed on the job.

More Giveaways -- Announcing the FMF Newsletter

Over the past few weeks, things have gotten a bit busy here on the blog as the several posts each day get crowded with the various giveaways I have going. I LOVE giving away so much stuff, but I'm afraid it's interfering too much with the content of the site. But don't worry, I'm not going to stop giving stuff away. I'm just changing the way it will be given away. Which leads me to this announcement:

I now have a Free Money Finance newsletter!

I was originally make it a combination of giveaways, news, deals, etc., but for the short-term, it will focus mostly on giveaways (I have a backlog of them). The newsletter will give details on how you can win the various prizes coming and MIGHT include some other content, though there's no promise of that for now.

So if you're interested in winning one of these (or other prizes TBA), simply sign up for the Free Money Finance (giveaway) newsletter!

FYI, I will have some giveaways on the site and at Twitter, but these will be much reduced compared to what you've seen as of late.

Note: This is my last newsletter announcement before the giveaways in April. The giveaways next month include:

• Quicken Deluxe

• 10 Arby's Roastburgers

• 3 Mogul games

Sign up now if you want to be included!

Social Security 3: Delay Filing for Younger Wives and Homemakers

The following is a guest post from Marotta Asset Management.

Most retirees believe their only choices for Social Security are to file early or to file when they reach full retirement age. Furthermore, married couples make the mistake of only calculating benefits on each person's personal life expectancy. If you are married, look at joint mortality. With a little planning, you can boost your benefits significantly.

Social Security options are complex for married couples. Each spouse qualifies for three different types of benefits. Option 1: They can file for their personal benefit based on their own record of earnings. Option 2: They may file for spousal benefits based on half of their spouse's earnings. With each of these options, they have three choices: file early, file at full retirement age or delay filing and receive up to 132% of full retirement benefits.

Option 3 is for retirees who meet requirements for a survivor's benefits after their spouse predeceases them, based on their spouse's earnings record. Don't overlook this survivor's benefit when you are deciding when to file. Computing how long you must live to take advantage of late filing requires including the projection for survivor's benefits and considering the likelihood that each spouse might be the first to die.

For any couple in a situation where one should take the other's spousal benefits, joint longevity as well as the difference between their ages affects the filing options significantly. There may be many more years to collect survivor's benefits than personal benefits. Because women typically live longer and are more likely to have earned lower personal benefits, many men delay their benefits until age 70. Their wives thus inherit a larger benefit to use through possibly long years as a widow, a wonderful way to protect a loved one from running out of money.

For example, consider Leland and Candy Rockefeller. Candy met Leland in her tai chi class at the country club. Leland's wife had passed away two years earlier, and Candy was just beginning to think about marriage. They fell in love over a couple of bento boxes after class. She'd always wanted to see Tokyo, and he owned a penthouse suite on Shibuya Street. They honeymooned in the Far East.

Despite their age difference, they have been happily married for seven years. Leland is now 62 and considering filing for Social Security; Candy is 25 years younger. Second marriage has kept Leland in good shape, but the men in his family did not live to old age. He may not need the money either way, but he is tempted to take early benefits and get as much as possible while the system is still viable.

Candy, in contrast, has youth on her side. She enjoys excellent health and exercises regularly. And the women in her family have had impressively long lives.

When Leland dies, Candy can begin receiving a survivor's benefit as earlier as age 60. If he files early, she will receive a monthly benefit equal to $1,661 in today's dollars, but if Leland waits until age 70, she will receive a monthly benefit of $2,192. Her many years of receiving benefits far outweigh the possibility that Leland will die too young to enjoy his increased benefits. Clearly he should wait until age 70 before he files for Social Security.

Even if Leland dies at age 70 and does not receive a dime of benefits, so long as Candy lives past 76, it will have been worth it. Candy finds it enormously reassuring to know that even if she lives to be 100 she will have received $1,052,160, or 11% more benefits, because of Leland's wisdom in waiting to file. And if Leland lives to an average life expectancy of 81 and Candy lives to age 84, which is typical for women in retirement, they will collect $182,664 more because of Leland's delayed filing.

Healthy spouses with little earnings of their own should always consider encouraging their partners to delay filing for Social Security. Having little, if any, benefit accrued on their own work record, they will need to rely on their spousal and survivor's income benefits. This is a situation that homemakers and younger wives share. Only in a situation where both the spouses have a shortened life expectancy does it benefit a couple to file early. Delaying your filing for Social Security also allows you to earn additional income and save money without penalizing your benefits.

Another reason to delay filing is to gain a measure of longevity insurance. Dying young never jeopardizes a retirement plan financially. It's only when you live a long time that you risk running out of money. Filing late increases the money you will receive. And if you live a long life, the benefit of a later filing increases the longer you live.

Anyone who delays filing for Social Security should also consider another choice: filing, repaying and then refiling. This option is both riskier and more complicated, but it can boost your benefit by an additional 3%. We discuss this scenario in next week's column.

Too many impatient retirees take Social Security as soon as possible and miss out on thousands of dollars. Run the numbers and consider all your options before you make the decision when to file.

Click here to read part 4 of this series.

Answers from Quicken, Quicken PC

A little while ago, I asked if any FMF readers had questions about Quicken since I had a Quicken expert available to answer them. Well, now we have the answers. Here is the second wave of them -- these dealing with Quicken PC.

This is Chelsea from Quicken. Thanks for the chance to help out your readers. If they want to stay connected with Quicken on the Web, they can follow me or Quicken Online on Twitter (@QuickenPRChels and @QuickenOnline), read the Quicken blog, or become a fan of Quicken or Quicken Online on Facebook. Hope these questions and answers help, and feel free to put me in touch with any readers that follow-up with you for more information. I’m going to watch the comments too so I can help out.

Raise in the Budget Function

Q. Issue 1: There's no good way to account for a raise without the budget function assuming that raise is retroactive. For example, if I receive a $1k raise in July, and update my paycheck accordingly, Quicken calculates the funds as if I had that raise during January through June, which makes it look like I have more available cash than I really do.

A. When you use “automatic update,” it changes the whole year once you update your paycheck. Instead, choose “no” and then update the months manually for the 5 to 6 months left for an accurate financial picture after your raise.

Budget Adjustments

Q. Issue 2: There's no way to account for month to month budget adjustments over the course of more than a calendar year. For example, if I adjust my personal spending budget each month, once it rolls over from December to January of the following year, I have to start overwriting my previous budget. This means I can't run a report for a greater than one year time period, because my spending in January 2007 was lower than in January 2008, and there's no way to account for that in Quicken.

A. The “My Savings Plan” feature is a possible solution for you. It is designed for month-to-month budgeting.

Product Suggestions

Q. I converted from MS Money to Quicken, but one major component of Quicken is driving me batty. When is the budget feature going to be updated in Quicken? I had Quicken 2006, and updated to 2009, and there have been ZERO improvements to the budgeting function.

Q. Why did you get rid of the ability to download QIF files? I've been using Quicken for years and my credit union doesn't do QFX. I know of a workaround for this, but only for cash accounts. Why not open it back up to all account types? Please bring QIF imports back!!!!

Q.  I've noticed a /lot/ of people use a categories (like "car payment") instead of a split transaction between a loan account and the interest paid "category" , perhaps Intuit should do a tutorial on how to do loan and asset accounts properly.

Q. Why doesn't Quicken provide some options for an "envelope" based budgeting approach?

Q. When are they going to do something about the whacked out column widths on their reports and provide more of a WYSIWYG approach to report creation?

A. All of the comments above include great product suggestions and ideas. I’ve made sure the Quicken product team has seen them already, but there is a way for you to have more influence over future Quicken features too. We don’t share product roadmaps publicly, but there are other ways to give us input and learn ahead of time what might be coming. On Feb. 25 we launched the Quicken Inner Circle. Inner Circle will give you a chance to share your thoughts about current and future Quicken product features. Read more on the latest Quicken blog entry about it, and sign up here.

QIF Importing

Q. A second for QIF import. My biggest complaint is the inability to import QIF files, I have to create a cash "suspense" account, import to there, then cut and paste all the transactions into the real account. ...this is the only way to import Paypal transactions and it's a big time waster.

A. Thanks again on the QIF import suggestion. I think this is something you should definitely bring up in the Quicken Inner Circle. It’d be helpful to talk about why QIF files are important to you as a user. Quicken does support PayPal download directly into the product, so let FMF know if you’re still having trouble so I can help you more, or visit www.quickencommunity.com.

Access from Different Computers

Q. Is there a way to have multiple user access form different computers? One of the problems I have with Quicken is my wife doesn't get up-to-date information on how we're doing because it's on my computer and not on hers. Is there a way to store the Quicken data on a file share (or better yet a SQL server, then I could write my own reports and queries for her to run) and allow multiple people to access it (even if one session is read only)? I can't use Quicken online because it won't import all my eight years worth of data and it doesn't support a lot of the advanced features I use. What suggestions do you have?

A. Quicken Online is a basic personal finance service, and is 100% free and Web-based, but it won’t be the right match for every financial situation. Since it is free, some Quicken desktop users find the ability to get a quick glance at finances from any Web connection as well as text and email alerts helpful when used in addition to a desktop solution. One suggestion for accessing your account on multiple computers is to put your data file on a network drive where you can each access the file on your own computers. This is another potential product idea I’d suggest you bring up in the Quicken Inner Circle.

Tagging

Q. I've noticed a movement towards tagging in newer versions, this won't compromise the double-entry accounting (I emulate it using categories and split transactions) will it?

A. No, this will not impact the double-entry accounting.  Tagging enhances the ability to filter transactions and improve reporting. Tagging is not a substitution for categories or splits.

Quicken Life

Q. I currently use Quicken 2008 Home & Business on my Mac under Parallels. What features would I lose if I upgraded to the Quicken Life version that's coming out soon?

A. Quicken Financial Life for Mac is still in beta and will ship this summer. Quicken Home & Business is geared toward both personal finances as well as business, while Quicken Financial Life for Mac will be a personal finance solution. Beta testers are still giving us great feedback and suggestions, so the final feature set is definitely subject to change. However, you can get a good basic idea of what will be included here.

Product Discontinuation

Q. I'd love some info on their "sunset" policy where they do not support older versions of the software. I've been using quicken for 10+ years now & am annoyed that I am forced to upgrade every few years to keep getting my transactions downloaded. There is nothing that is so revolutionary in account keeping that requires me to upgrade every 2-3 years and purchase their new software.

A. I understand your frustration with product discontinuation. First, thanks for sticking with Quicken for more than 10 years. Hopefully some of this additional information will help you understand more about why we do discontinue products. I recently had a conversation here (in comments) and here with a blogger about the discontinuation. In that conversation, we talked about how the company continues to research and develop new products and improve support for existing Quicken customers. Desktop products come with three years of connectivity, and users are certainly able to continue using the products without connectivity (i.e. manual entry of transactions). Even that connectivity costs the company as well.

Since you’re such a long-time user, you might have some ideas for how we might better improve Quicken products to make upgrading worth it for you.

You said above “There is nothing that is so revolutionary in account keeping that requires me to upgrade every 2-3 years and purchase their new software.” As I’ve suggested many times in this Q&A, Quicken Inner Circle is a great place to help us do something revolutionary for you. Also, if it is any consolation, you will get $20 off a new copy of Quicken if you choose to upgrade by the end of April 2009.

Star Money Articles and Carnivals for the Week of Mar 23

For weekday updates of what I find to be some of the most interesting personal finance articles on the web, follow me on Twitter And for now, here are some recent interesting posts from around the web as well as a list of the carnivals Free Money Finance was in this week and my posts that were included:

• Bargain Babe says to hunt for fashion bargains. 

• Your Money Relationship talks average net worth numbers.

• MSN Money lists secrets of successful savers.

• The Digerati Life budgets Dave Ramsey style.

• Lifehacker details 101 recession-busting free sites and downloads.

• Festival of Frugality -  Extreme Frugality: Car Edition

• Carnival of Personal Finance - Trying to Earn More Money? Stop Wasting Your Time

• Carnival of Debt Reduction - The Best Cashback Credit Card

• Cavalcade of Risk - Six Ways to Trim Life Insurance Costs

Enjoy!

P.S. Carnival Hosts -- If my post is in your carnival in a given week, please send me the URL to the carnival and I will include it in my weekly roundup.

Help a Reader: Canadian Buying Property in Florida

Here's an email I recently received from a reader:

I am looked at buying a second property/investment property in Florida. Being a that I am Canadian I would like to know if anybody has any advice for information on this topic. I own two properties in Canada and know fully the ins and outs of the mortgage industry here, but am unfamiliar with the US. 

• What are the average closing costs for house in the 100k -150k range?
• Being a non-resident what are the approx. property taxes?
• Is it hard for a non-resident to obtain financing in the US? (with 30% down)
• Any other issues that I should be aware of?

I am just starting this process and have initial contact with a broker and real estate agent as well as a real estate lawyer. I was just wondering if there is anything I should know that maybe they will not tell me.

Any thoughts for him?

Pets Hurting with the Economy

Here's a sad story about the cost of pet care and how some people are choosing NOT to care for their pets because of the bad economy.

Again, people, PLEASE think through the financial commitments of having a pet before you get one. For guidance, check out the cost of pets according to the SPCA.

Answers from Quicken, Quicken Online and Quicken Mac

A little while ago, I asked if any FMF readers had questions about Quicken since I had a Quicken expert available to answer them. Well, now we have the answers. Here are the first few of them -- these dealing with Quicken Online and Quicken for the Mac.

This is Chelsea from Quicken. Thanks for the chance to help out your readers. If they want to stay connected with Quicken on the Web, they can follow me or Quicken Online on Twitter (@QuickenPRChels and @QuickenOnline), read the Quicken blog, or become a fan of Quicken or Quicken Online on Facebook. Hope these questions and answers help, and feel free to put me in touch with any readers that follow-up with you for more information. I’m going to watch the comments too so I can help out.

Quicken Online

Q. I am looking for a good online money management tool. Obviously, I must choose between Quicken Online and Mint. My friends use Mint, but it will only store up to 3 months of financial information. Storing only three months of info makes it hard to budget for an entire year. My question is, does Quicken Online store information for more than 3 months? If it does, then my decision is easy.

A. Hi @SAH, The answer is yes. Quicken Online stores more than three months of data. We want to help people be prepared for tax time, so we’ll definitely have data for the whole year but you’ll want to start before April 15 so you get all the information you need by next year. On first download, we only grab the first three months from your financial institution, but we store everything from that point going forward so you can build a history. We’ve also just added cash tracking and have some exciting new things coming this spring.

Quicken Mac -- ELOC Loans

Q. I use Quicken 2007 and am pretty much a beginner. My question is how do I categorize equity line of credit loans (transferred to accounts to cover bills, etc.)? They show up as income on my reports. So, my reports show my income almost quadrupled what it actually is. Is there some other category I should be using? HELP!

A. Great question! Here are two tips from the product team: First, set up an equity line of credit loan as an account in Quicken and next, go back to the original account and treat these incoming funds as transfers. If this doesn’t work for you, please visit www.quickencommunity.com or let FMF know, and I can get in touch with you to provide you with more help.

Quicken Mac -- Quicken Financial Life for Mac

Q. Why has the release date for Quicken Financial Life for Mac product been pushed back so many times? If I bite the bullet now and buy Quicken for Mac 2007, will *all* the data be easy to import into QFLM when it finally does come out in the summer (hopefully)?

A. We’re rebuilding Quicken Financial Life for Mac from the ground up to take full advantage of the new Apple OS. Along the way, we re-evaluated what we need to deliver a superb experience and are committed to releasing a great product for you. Ultimately we chose to delay the product rather than release something our discerning Mac customers wouldn’t love using every day. Quicken Financial Life for Mac will be out this summer, and will come with a simple conversion utility that will help you import all of your Quicken Mac 2007 file into the new product.

Quicken Mac -- General Question

Q. Also, what the heck is up with their quicken for Mac version? I'm a new MAC user & would love to transfer my files over to my new computer. However, I've read awful review about Quicken for Mac and they are not up-to-date with the PC versions. There's no equivalent accounting software for MAC & my husband is really tired of me using his PC laptop to do our finances after we bought me a new computer that I can't use Quicken on.

A. You’re correct that our most current personal finance software for the Mac is Quicken Mac 2007. Quicken Financial Life for Mac will ship this summer. PC to Mac data transfer is one of our top priorities as we rebuild the product from the ground up. Quicken Financial Life for Mac is currently in beta, and we’ve got lots of passionate testers (both Mac novices and experts) giving us great feedback and suggestions. Here is a recent review of the beta so far (keep in mind, this is just a beta and features are subject to evolve and change): Also, here’s a video of the Quicken Financial Life for Mac product manager talking about the beta at MacWorld 2009.

Entertainment Book Winner Announced -- And Have You Won Anything?

Just wanted to let you know that I named the winner of the Entertainment Book giveaway announced on Monday. Click on the links in this post and scroll to the bottom of the new pages to see if you've won.

FYI, I've had a lot of prizes gone unclaimed lately. People put their names down, win the prize, then never come back to see if they've won.

Remember, the responsibility is yours to come back to the original post and see if you've won. I try and make this easier by making an announcement post (like this one) when a winner is named. I am NOT going to start tracking down winners (been there, done that, huge hassle, I'd rather not give anything away than go back), so don't even suggest that option. ;-)

The best option for seeing if you've won any of the recent giveaways is to go to my giveaway category page (click the link) and scroll down the various giveaways. Look for the announcement of winners posts (like this one), then click on their links to see if you've won.

I am hoping that moving most (eventually all) of the giveaways to my new newsletter will take care of much of the problem as people will be focused on the giveaways and check back regularly. If you want to be included, sign up for my newsletter here.

Your Most Important Investing Decision

The following is an excerpt from the book The Sound Mind Investing Handbook - A Step-By-Step Guide To Managing Your Money From A Biblical Perspective 5th Ed. I've had to modify it a bit since the chart it used to refer to wasn't showing up in the post.

Investing is actually quite simple . . .

 . . . because you only have two basic choices: investments where you become a lender to someone and investments where you become an owner of something.

Investments where you lend your money are generally the lower-risk kind. Assuming you do a good job of checking out the financial strength of the borrower, the primary risk is that you might get locked in to a poor rate of return for many years.

Investments where you own something are generally the higher-risk kind. The primary risk here is that the value of what you own could fall, so the economic outlook and its effect on your holdings is of great importance.

What I’m about to tell you is very important, so please pay close attention: The way in which . . .

. . . you divide your investment capital between these two basic choices of “loaning” or “owning” has a greater impact on your eventual investment returns than any other single factor.

Think of your investments as being like a garden. Some people like to grow flowers and others prefer to grow vegetables. Some enjoy doing both. The one decision that has the greatest influence over what your garden looks like and the kind of harvest you’ll ultimately have is this: How much of your garden should you devote to flowers and how much to vegetables? Once you decide that, you know a lot about what to expect in terms of the risks involved and the potential results even if you haven’t yet decided which kinds of flowers or vegetables you’re going to plant. Once you decided how you were going to allocate your space, the kind of harvest you were going to have was, to a great extent, already predetermined.

Now, let me shift your thinking to the investment arena. Studies have shown that 80% or more of your investment return is determined by how much of your portfolio is invested in stocks (flowers) versus bonds (vegetables), and only about 20% is determined by how good a job you did at making the individual selections. This surprises most people, because the investment industry gives far more attention to telling you about hot stocks and mutual fund performance rankings than to explaining the critical importance of asset allocation (that is, how much space you make in your investment garden for stocks versus how much room you allocate to bonds). We’ll look at this in great detail in chapter 16 where I’ll teach you a very simple strategy which puts your focus on “how much you put where” rather than “which ones.”

For now, I just want you to recognize that the economic forces that influence the two basic choices are different. It’s possible for you to invest-by-lending your money to a financially strong company like General Motors in return for one of its bonds and, even in the midst of a deep recession, earn a nice return. On the other hand, it’s also probable that if you chose to invest-by-owning stock of the same corporation and thereby become one of its part owners, the same recession would have caused serious harm—hopefully temporary—to the company’s earnings and dividend payments. As a part owner of the business, you would have likely watched your investment in the company lose value even while its creditors (like the investors who bought GM’s bonds) were happily collecting their interest payments.

Of course, that’s just looking at the risk part of the equation. The other side of that coin is that the owners of a company can enjoy great prosperity during those times in the business cycle when the economy is healthy and growing. The creditors, meanwhile, continue receiving only the interest payments to which they are due.

Consider the five-year period from 1987 to 1991. Investors who allocated 100% of their capital to being owners (by investing in the shares of stocks in those blue-chip companies that are part of the Standard & Poor’s 500 Stock Index) would have received a total return of 15.4% per year during that time. This is despite the fact that the crash of 1987 occurred early in the period. Furthermore, with a few exceptions (notably during the bear markets of 1973-74 and 2001-02), stockholders who hold for at least a five-year period typically do far better than bondholders during the same period.

Investors who decided to allocate 100% of their money to becoming lenders would have earned 10.4% per year during the 1987–1991 period. (This assumes their returns were similar to the bonds included in the Salomon Brothers Long-Term High-Grade Corporate Bond Index, which is an average of more than 1,000 publicly issued corporate debt securities.) They would have made less money and taken less risk. Investors who don’t want to cast their lot entirely with either camp, but choose to split their capital equally between the two basic choices—50% in stocks and 50% in bonds -- have consistently been profitable.

All investing eventually finds its way into the American economy. It provides the essential money needed for businesses to be formed and grow—for engineering, manufacturing, construction, and a million and one other services to be offered and jobs to be created. You can either be a part owner in all this, tying yourself to the fortunes of American business and sharing in the certain risks and possible rewards that being an owner involves. Or, you can play the role of lender, giving your money to others in order to let them take the risks and knowing you are settling for a lesser, but more secure, return on your money.

How to divide your funds between these two kinds of endeavors is your first and most important investing decision. Everything else is fine-tuning.

Free $25 from LendingClub!

This is a reminder for those of you who may have missed my earlier posts.

As many of you know, I recently gave away five $100 gifts courtesy of LendingClub. There were only five winners of those, but today I have something for everyone.

Every reader here that qualifies (more on that later) can get a FREE $25 from LendingClub just for opening an account with them (which is free as well.) Once you do, you can lend the $25 as part of their program or withdraw it if you like. Here's how it works:

1. Go to LendingClub using this link.

2. Open a lender account.

3. The money will automatically be in your account and will be ready to lend out. 

There are state and financial suitability conditions, so not everyone is eligible. In addition, you may be able to lend in the secondary market if you they can't lend in the primary. Details and specifics are here.

Free Money Finance March Madness, Elite 8, Posts 1-4

We're now down to the Elite 8 of Free Money Finance March Madness (if you wonder what's going on in these posts, see my article announcing March Madness and/or click on my March Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword(s) after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1 - Saving; Game 2 - Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 1

• Do you appreciate what you have? (Appreciate) - Read about what how a simple volunteer event for my son one evening turned out to to have an impact on our whole family.  His one hour volunteer effort gave us a completely different perspective on what we have and how fortunate we are.  Do you appreciate the things you have?  Don't ever forgot, some people have little to nothing.

VERSUS

• 100 Money Saving Tips for the Holiday Gifting Bonanza Post (Bonanza) - Don't let the title fool you, these money saving tips are applicable at any time of the year, they just seemed especially useful so that you could save money to buy your friends and family more gifts! They are categorized by what aspect of your life they apply to (from eating & drinking to your home) and come with pretty pictures to boot! You are guaranteed to find at least one or two (or twenty) tips that you didn't know before or you will get your money back!

GAME 2

• 29 Steps I Took to Leave the Workforce at Age 29 (29) - I quit my corporate job in 2008 to spend more time with my kids and do some writing on the side. It was the best decision of my life! Here's the financial road map that made it possible without scaling back on our spending.

VERSUS

• The Pursuit of Financial "Happyness" (Pursuit) - It doesn't matter if you're a financial ninja: personal finance just isn't about the money. If you don't know why you're trying to amass money in the first place, then every dollar you save is just another dollar you waste.

Help a Reader: Credit Report Problem

Here's an email I recently received from a reader:

I obtained my free credit report recently and it is completely spotless with one exception -- a $132 outstanding balance for Comcast Chicago that was sent to a collection agency several years ago. Here's the thing: I've never had an account with Comcast in the Chicago market. I currently have a Comcast account in the Indianapolis market, and no I've never missed a payment -- and why would they let me sign up anyway if I owed them money?

At any rate, I've tried calling the phone number for the collection agency on my credit report many times to find out what was going on, but only once did I finally get through to a real person -- and was then told he needed to put me on hold, at which point he just hung up. I called back, and found out they had closed. They seem to close early, and I can't sit around at work all day on the phone with this agency.

So I initiated a dispute via the TransUnion web site and asked them to investigate the account, checking off the box that indicated I had no knowledge of this collection account. I'd never been contacted about this in any way, so this copy of my credit report was the first I'd heard of it (don't companies have to contact you before sending something to collections??). A few weeks later, TransUnion completed their investigation and I received a message saying they had verified the account was accurate and would not remove it from my credit report.

So now what do I do? I think it's in error, but the credit agency won't remove it. I can't even get hold of someone at the collection agency to state my case, not that they're likely to care anyway. Should I try calling Comcast about it directly, or will they no longer care since they turned it over to collections? And finally, if I just give up and pay the collections agency, does that remove it from my report?

What's your advice for him?

The Myth of Financial Expertise: Why Professional Wine Tasters and Stock Pickers are Clueless -- and How You Can Beat Them

The following is an excerpt from "I Will Teach You To Be Rich." At the end of the piece, I offer my thoughts on what's being said here.

If I invited you to a blind taste test of a $12 wine versus a $1,200 wine, could you tell the difference? I bet you $20 you couldn’t. In 2001, Frederic Brochet, a researcher at the University of Bordeaux, ran a study that sent shock waves through the wine industry. Determined to understand how wine drinkers decided which wines they liked, he invited fifty-seven recognized experts to evaluate two wines: one red, one white.

After tasting the two wines, the experts described the red wine as intense, deep, and spicy—words commonly used to describe red wines. The white was described in equally standard terms: lively, fresh, and floral. But what none of these experts picked up on was that the two wines were exactly the same wine. Even more damning, the wines  were actually both white wine—the “red wine” had been colored with food coloring.

Think about that for a second. Fifty-seven wine experts couldn’t even tell they were drinking two identical wines.

There’s something we need to talk about when it comes to experts. Americans love experts. We feel comforted when we see a tall, uniformed pilot behind the controls of a plane. We trust our doctors to prescribe the right medications, we’re confident that our lawyers will steer us right through legal tangles, and we devour the words of the talking heads in the media. We’re taught that experts deserve to be compensated for their training and experience. After all, we wouldn’t hire someone off the street to build a house or remove our wisdom teeth, would we?

All our lives, we’ve been taught to defer to experts: teachers, doctors, and investment “professionals.” But ultimately, expertise is about results. You can have the fanciest degrees from the fanciest schools, but if you can’t perform what you were hired to do, your expertise is meaningless. In our culture of worshipping experts, what have the results been? When it comes to finances in America, they’re pretty dismal. We’ve earned failing grades in financial literacy—in 2008, high school seniors correctly answered a gloomy 48 percent of questions on the Jumpstart Coalition’s national financial literacy survey, while college seniors answered only 65 percent right. We think “investing” is about guessing the next best stock. Instead of enriching ourselves by saving and investing, most American households are in debt. And the wizards of Wall Street can’t even manage their own companes’ risk. Something’s not right here: Our financial experts are failing us.

When it comes to investing, it’s easy to get overwhelmed by all the options: small-, mid-, and large-cap stocks; REITS; bonds; growth, value, or blend funds—not to mention factoring in expense ratios, interest rates, allocation goals, and diversification. That’s why so many people say, “Can’t I just hire someone to do this for me?” This is a maddening question because, in fact, financial experts—in particular, fund managers and anyone who attempts to predict the market—are often no better than amateurs. They’re often worse. The vast majority of twentysomethings can earn more than the so-called “experts” by investing on their own. low-cost funds (which I’ll get to in the next chapter). So, for the average reasons for this that I’ll detail  below, but I urge you to think about how you treat the experts in your life. Do they deserve to be put on a pedestal? Do they deserve tens of thousands of your dollars in fees? If so, what kind of performance do you demand of them?

In truth, being rich is within your control, not some expert’s. How rich you are depends on the amount you’re able to save and on your investment plan. But acknowledging this fact takes guts, because it means admitting that there’s no one else to blame if you’re not rich—no advisers, no complicated investment strategy, no “market conditions.” But it also means that you control exactly what happens to you and your money over the long term.

You know what the most fun part of this book is for me? No, it’s disbelieving e-mails I’m going to get after people read this chapter. Whenever I point out how people waste their money by investing in below-market returns, I get e-mails that say, “You’re full of it.” Or they say, “There’s no way that’s true—just look at my investment returns,” not really understanding how much they’ve made after factoring in taxes and fees. But surely they must be making great returns because they wouldn’t continue investing if they weren’t making lots of money . . . right?

In this chapter, I’m going to show you how you can actually outperform the simplest approach to investing. It’s not easy to learn that reliance on so- called “experts” is largely ineffective, but stick with me. I’ve got the data to back it up, and I’ll show you a simple way to invest on your own.

More Examples of How “Experts” Can’t Time the Market

Pundits and television shows know exactly how to get our attention: with flashy graphics, loud talking heads, and bold predictions about the market that may or may not (in fact, probably not) come true. These may be entertaining, but let’s look at some actual data.

Recently, Helpburn Capital studied the performance of the S&P 500 from 1983 to 2003, during which time the annualized return of the stock market was 10.01 percent. They noted something amazing: During that twenty-year period, if you missed the best twenty days of investing (the days where the stock market gained the most points), your return would have dropped from 10.01 percent to 5.03 percent. And if you missed the best forty days of investing, your returns would equal only 1.6 percent— a pitiful payback on your money. Unfortunately, we can’t know the best investing days ahead of time. The only long-term solution is to invest regularly, putting as much money as possible into low-cost, diversified funds, even in an economic downturn.

USELESS NEWSLETTERS. A 1996 study by John Graham and Campbell Harvey investigated more than two hundred market-timing newsletters. The results were, shall we say, unimpressive. “We find that the newsletters fail to offer advice consistent with market timing,” the authors deadpanned as only academics can. Hilariously, by the end of the 12.5-year period they studied, 94.5 percent of the newsletters had gone out of business. Not only did these market-timing newsletters fail to accurately predict what would happen, but they couldn’t even keep their own doors open. Get a life, market timers.

I’ll end with a couple of more recent examples. In December 2007, Fortune published an article called “The Best Stocks for 2008,” which contained a special entry: Merrill Lynch. “Smart investors should buy this stock before everyone else comes to their senses,” they advised. They obviously weren’t counting on it being sold in a fire sale a few months later. And in April 2008, BusinessWeek advised us, “Don’t be leery of Lehman.” I’m not sure about you guys, but I’m leery of worthless risky advice couched in cute alliteration. I think I’ll ignore you from now on, pundits.

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My (random) thoughts:

1. Oh, boy! He's speaking my language now! Financial "experts" can take many forms -- from the TV personalities who don't know much about what they're talking about to the everyday financial planner who thinks he can manage your money better than you can.

2. Generally, I don't put much stock in financial "experts." In fact, one of my very first posts was about how I didn't really like them.

3. Here are a few of my selections on what I've said about financial planners:

• Shocker: Many Brokers Give Bad Advice

• Many Taxpayers Get Burned by Inept or Crooked Preparers

• Make Sure Your Financial Advisor is Not a Loser

• FMF Speaks: My Thoughts on Using Financial Planners (Or "Why I Don't Go to a Fat Doctor")

• Comments: FMF Speaks: My Thoughts on Using Financial Planners (Or "Why I Don't Go to a Fat Doctor")

• MND: How to Choose a Financial Advisor

• MND: Operate Your Household Like a Business when Hiring a Financial Advisor

• MND: Hiring the Wrong Financial Advisor is Bad for Your Net Worth

• Safeguard #1: Do Not Allow Your Advisor to Have Custody of Your Investments

4. It's very true that becoming wealthy is rather simple (but not easy, mind you.)

5. Just got this book in the mail: How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn Here's the Amazon summary of it:

Investing is simple, but never easy. We carry a lot of investment baggage—including hot tips from friends and the financial media and complicated financial recommendations from Wall Street salespeople and brokers. Yet the biggest obstacle we face by far is our ability to outsmart ourselves.

In order to overcome these obstacles, investors need to follow straightforward strategies that will consistently push their portfolios ahead of the pack by an additional three to four percent annually over most investors. Strategies that even a kid could understand. In How a Second Grader Beats Wall Street, readers will follow the story of Kevin Roth—an eight-year-old who was schooled in simple approaches to sound investing by his father and expert financial planner, Allan Roth—and discover exactly how simple it can be to successfully invest. Page by page, readers will learn how to create a portfolio that can move up their financial freedom by 10-15 years. And all this can be accomplished by using some simple, commonsense techniques. Kevin and his dad reveal fresh, new approaches to investing, along with some of the tried-and-true existing but rare approaches. Whether new or old, these techniques share something in common—they're so simple, an eight-year-old can understand them.

Engaging and insightful, How a Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn takes investors through Kevin Roth's story, while driving home key strategies and tools investors can implement in their own portfolios.

6. It turns out that monkeys are also good financial experts.

7. So if second graders and monkeys are good at managing money, you think maybe you can be too (with a little effort) or do you need an "expert" to tell you what to do? ;-)

8. All this said, I do use experts in cases of extreme complexity -- like CPAs and lawyers. The key to using them: make sure you get a good one. Duh! ;-)

Review Your Credit Card Bill

The following is an excerpt from "I Will Teach You To Be Rich." At the end of the piece, I offer my thoughts on what's being said here.

I pay with my credit card as much as possible because it lets me automatically download my transactions and categorize my spending. Plus, I get travel points and extra consumer protection, like a free additional warranty for any electronic device.

Once a week, I take five minutes and review all the charges on my card, and once a month I get an e-mail to review my entire bill. If I take no action, my credit card reaches into my checking account and pays the full amount automatically. No late fees, no worries. If I do see an error, I just call my credit card company anytime twenty-four hours a day and get it fixed.

Let’s talk about those weekly reviews for a second. I do like to keep an eye on my credit card charges whenever there’s a human involved, so I keep my receipts whenever I go to restaurants, and store them in a folder on my desk.

Every Sunday night, I open the folder and spend about five minutes comparing my receipts with what my credit card’s website says. I just do a “ctrl-f” for the amount (for example, $43.35) and confirm that it’s correct. If I wrote down $43.35 as the full amount, but instead saw that the restaurant had charged me $50, someone’s trying to make a quick buck off me. And in that case, you need to ask yourself one question:

WWAID? (What would an Indian do?)

Answer: A quick call to my credit card company will resolve this.

The most important thing is keeping your receipt folder on your desk. If you have to get up to get it—even a few steps away—that’s a huge barrier to getting this done consistently.

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My thoughts:

1. I pay with a credit card as much as possible too. It's not only convenient, but it earns me a good amount of money each year as well.

2. Points? Did he say points? Ugh.

3. He's got a pretty slick system -- EVERYTHING is automated. But this adds a bit of extra complexity to his life -- he has to check his accounts regularly to make sure nothing is out of whack. I still use the "mail me a bill" method. They send me a bill, I reconcile it with Quicken (takes about two minutes a month), and I send them a check. I'm still a bit leery about giving a company a direct attachment to my checking account that allows them to suck out funds whenever they want. The only links to my checking account are my various investment accounts -- and I control the flow of funds back and forth. Maybe it's just a product of my age that I'm hesitant about auto-deductions -- that I'm in the over-40 crowd. ;-)

4. My receipt folder is actually a bin and it's way more than a few steps from my desk. Then again, I'm pretty disciplined, so it's no big deal -- my receipts always make the transition. Besides, there's a far greater chance of being lost of they're anywhere on my desk. ;-)

5. For those of you wondering, the author of the book this is from is Indian.

Help a Reader: Tax on Car

Got this comment from a reader:

I am buying a car from a dealer and he is telling me that I have to pay sales tax on the full amount of the car regardless of the rebate. I think I should on pay sales tax on the purchase price minus the rebate.

My guess is that you do have to pay tax on the "final" price of the car (before rebate) -- and the rebate is taken off later. But does anyone know for sure?

Maintaining Your Spending Plan

The following is an excerpt from "I Will Teach You To Be Rich." At the end of the piece, I offer some of my own thoughts on this issue.

Once you’ve done what you can to design and implement a Conscious Spending Plan that you’re comfortable with, give yourself some time to settle into a rhythm with it. Sure, eventually you can spend your time on strategic money decisions—“Should I be contributing 10 percent or 12 percent to my monthly savings goals?”—but first, you’ve got to get the basics down. As you go along from month to month with this new system, you’ll discover some surprises you hadn’t anticipated.

You’ll always have unexpected cash expenses like cabs or an umbrella when you forgot yours. And don’t flip out if you miss tracking a few dollars here or there—the minute your system becomes too oppressive for you to use is the minute you stop using it. I try to make as many purchases on my credit card as possible, so my software can automatically download my transactions. For cash spending, try to get the receipts and enter them into your system within seven days. After that, I tend to lose receipts or let them build up so much that I forget what some of the receipts were for. Make tracking your spending a weekly priority. For example, set aside thirty minutes every Sunday afternoon.

HOW TO HANDLE UNEXPECTED AND IRREGULAR EXPENSES

It can be frustrating to have a spending plan that keeps getting disrupted by surprise expenses like wedding gifts, car repairs, and late fees. So another key to having a plan you’ll use is to account for the unexpected and build in a bit of flexibility.

Known irregular events (vehicle registration fees, Christmas gifts, vacations). There’s an easy way to account for this type of irregular event. In fact, this is already built into your spending plan: Under Savings Goals, you allocate money toward goals where you have a general idea of how much it will cost. It doesn’t have to be exact, but try to get a rough ballpark figure and then save every month toward that goal. For example, if you know you’ll have to spend about $500 on Christmas gifts, start saving $42/month (that’s $500 divided by twelve months) in January.
 
By the time December rolls around, you won’t have to take a huge hit on your spending.

Unknown irregular events (surprise medical expenses, late fees for your library card, or $100 flowers to make up to your girlfriend for something stupid you did last night). These types of surprises fall under your Monthly Fixed Expenses because no matter how hard you try to avoid them, there will always be unexpected expenses. Earlier, I suggested that you add about 15 percent to your estimate of your fixed costs to accommodate these surprises. In addition, I recommend starting by allocating $50/month for unexpected expenses. You’ll soon realize that this cartoonishly low figure is not enough. But with some time, you’ll have a better idea of what the figure should actually be and can change the amount accordingly.

Fortunately, with each month that goes by, you’ll get a more accurate picture of your spending. After about a year or two (remember, think long term), you’ll have a very accurate understanding of how to project. The beginning is the hard part, but it only gets easier.

THE “PROBLEM” OF EXTRA INCOME

Just as there are surprise expenses, there is also surprise income. It’s tempting to take a windfall and blow it all on something fun, but I urge you not to follow that instinct. Instead, work within your Conscious Spending Plan.

Unexpected onetime income. Sometimes money unexpectedly falls in your lap, like a birthday gift or from selling something on eBay. Believe it or not, I don’t encourage you to save all this money. Instead, whenever I make money I didn’t expect, I use 50 percent of it for fun—usually buying something I’ve been eyeing for a long time. Always! This way, I keep motivating myself to pursue weird, offbeat ideas that may result in some kind of reward. The other half goes to my investing account. Compare this with not having a plan and letting your money “just sort of” get spent.

Raises. A raise is different from onetime income because you’ll get it consistently, and it’s therefore much more important to do the right thing financially. There’s one important thing to remember when you get a raise:

Maintain your current standard of living. Too many people get a raise at work and say, “Great! I’ll go on that vacation!” Sure, you can do that. Then, “I’ll buy that new sofa I’ve been wanting!” Uh oh. And then, “I think I need those new shoes. What? I’ve been working hard!” And then you want to kill yourself because you’re swirling into a downward spiral of spending.

If you get a raise, be realistic: You earned it, and you should enjoy the results of your hard work. Buy yourself something nice that you’ve been wanting for a long time, and make it something you’ll remember. After that, however, I strongly encourage you to save and invest as much of it as possible, because once you start getting accustomed to a certain lifestyle, you can never go back. After buying a Mercedes, can you ever drive a Toyota Corolla again?

The best part about setting up a strategic budget is that it guides your decisions, letting you say no much more easily—“Sorry, it’s not in my plan this month”—and freeing you up to enjoy what you do spend on. This is guilt- free spending at its best. Sure, there will be tough decisions. Deciding to change the way you spend is the most difficult part of this book. It involves making choices and saying no to certain things. Your system, however, makes this much less painful. If a friend asks you out to dinner and you don’t have enough spending money left, it will be easier to politely pass. After all, it’s not personal—it’s just your system. Remember that most people are, by definition, ordinary. They go through their twenties and thirties feeling a gnawing sense that they “should” do something about their money— tomorrow. They don’t think about saving until their mid-forties. And yet, you are now extraordinary, because you see that setting up a simple system will let you make the tough decisions up front and spend your money guilt-free.

Working retail for five years I made a goal out of saving up 10K to be able to invest in the stock market. I decided everything I saved before the age of twenty-eight was available for me to fiddle with stocks; everything after twenty-eight was to be put in a blend of investment funds safe from my amateur investing styles. I was able to accomplish saving up 10K on a meager retail wage by putting half of every raise into my 401(k) plan. Every 4 percent raise was a 2 percent raise to my retirement plan.
—Jason Henry, 33

Week Four Action Steps

1.  Get your paycheck, determine what you’ve been spending, and figure out what your Conscious Spending plan should look like (thirty minutes). Do this now and don’t overthink it. Just break your take-home income into chunks of fixed costs (50–60 percent), long-term investments (10 percent), savings goals (5–10 percent), and guilt-free spending money (20–35 percent). How does it fit?

2. Optimize your spending (two hours). Dig in deeper to your savings goals and monthly fixed costs. Try the À La Carte Method. How much does your insurance actually cost—can you improve on that? How much will you spend for Christmas gifts and vacation this year? Break these expenses down into monthly chunks, then recalculate your plan.

3. Pick your big wins (five hours). Open an account at Mint or Quicken Online. Assuming you want to cut your spending by $200/month, what one or two big wins will you target? Start using the envelope system.

4. Maintain your Conscious Spending plan (one hour per week). Enter any cash receipts into your system each week. Tweak the percentages you send to each part of your spending plan (we’ll cover this in detail in the next chapter). And most important, make sure your system is realistic enough that you’ll stick with it for the long term.

All right, deep breath. You did it. You made it through the most difficult part of the book! Now you’ve got a strategic spending plan. You no longer have to constantly worry about how much money you’re spending. Phrases like “Can I afford this?” and “I know I’m going to worry about this later, but for now . . .” will be erased from your vocabulary. Now we’re going to automate this system so each new dollar that comes into your system gets instantly sent to the right area, whether it’s investments, savings, fixed costs, or guilt-free spending.

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My thoughts:

1. I usually enter my info into Quicken with a couple weeks (I put receipts in a central place during that time), but any longer than that and records (and memories) can get hazy and lost.

2. 100% agree with his thoughts on not raising your standard of living (at least fully -- you can a bit) when you get a raise. Sure, spend a bit on something you want, but don't automatically spend all of your increase. Otherwise, you're not going to make much (or even any) progress at growing your net worth.

3. Overall, I'm a big fan of having a budget and using it as a tool to guide your spending decisions. You don't have to be a slave to it, but you certainly need a plan for your money -- which is what a budget (or spending plan if you like) is.

4. Once you get a handle on your money, you may not need a budget. But this is 10 or 15 years down the road for those just starting out IMO.

Five Financial Advisor Red Flags

Here's a guest post from Jeremy at 401k Rollover IRA info.

Should you drop you financial advisor? Five red flags to look out for.

1.) When is the last time you've talked to him?

Better yet, when is the last time he has called you? A good advisor should be keeping in touch with his clients at least once every six months to review the account, and if you have questions you should be able to reach him within a week. Talking to his assistant about making a withdrawal doesn't count.

2.) When you do talk to your advisor, does he always reccomend you change things or push you to invest in a certain product?

• More specifically, does he reccomend you sell stock but keep your mutual funds as is?

• Advisors make commissions on each stock trade you place, but they make money on mutual funds as long as you're in them due to commission trails. Part of the mutual fund internal expense goes to them, so it's in their best interest to keep you in them.

• Also, watch out for the advisor that pushes annuities. Advisors also make more selling annuities than most other products. If you advisor tells you to invest in an annuity, make sure you ask for a prospectus and do some research on the underlying expenses.

3.) Look at your investments.

• Are most of them proprietary products? This means products owned by the firm he is with. For example: if you have a financial advisor with XYZ firm and he sells you XYZ mutual funds or XYZ annuities, you may want to look elsewhere.

• The reason for this is that advisors usually get paid higher for selling proprietary products and their firm may even push them to sell these. For the most part, you can find a better performing investment than something owned by that firm.

• Check the internal fees on your investments compared to other products. If they are higher than most, he is probably making more money on them as well.

4.) Do a FINRA broker check on your advisor.

• FINRA is the regulatory body (formerly known as the NASD) that governs brokerage firms.

• Go to http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm to perform a broker check. The only information you need is his name. All written complaints filed by clients will show up here.

• One or two complaints shouldn't raise a lot of concern (especially if he's been in the industry for a number of years), but if you see a laundry list that should be your cue to leave.

5.) Does he dance around questions or try to control the conversation?

• If you're worried about why your account was down 37% last year then ask him straight up, and don't hang up until he provides you with a suitable answer. That is his job.

• If he doesn't know the answer or cannot provide you an answer you think is suitable, look elsewhere. There is nothing saying that you have to keep your money with this person.

Advisors are around to look out for their client's best interests. However, there are always people out there that look out for themselves first. If you see a lot of the red flags discussed here, it may be a good idea to get a second opinion.

How to Save 25% on Your Food Bill

Yahoo says that roughly 25% of the food Americans buy goes to waste. So, if you can stop the waste, you can, in theory, save 25% on your food bill. Here are five tips from them on how to do this:

• Shop for groceries no more than once every two weeks. Time and again, studies confirm the obvious: Q.) How to keep yourself from buying too much stuff? A.) Shop less frequently.

• Use up fresh fruits and vegetables first, and then supplement them with just-as-healthy frozen as you get into the second week.

• Think layovers, NOT leftovers.

• How to handle restaurants. Order only from the appetizer menu or split a single ginormous entrée. And remember, doggy bags and leftovers.

• Social therapy. Volunteer one day out of the year at a local food kitchen for the needy, and then see how much food you throw away.

Here's my take on each of these:

1. Yikes! We have a store a few blocks from home that makes two or three trips a week very easy. Plus, I don't think my wife has it in her to plan meals out that far (though I've tried supplying a list of meal options she can simply rotate.)

2. We eat very little frozen food as a major part of any meal. Do they really have healthy alternatives (that don't cost a fortune)?

3. Certain foods are made for leftovers: pizza, Italian dishes, steak, stew, turkey. Others are not: chicken breasts (ok if repurposed into sandwiches), salmon, meatloaf (unless you have a ton of ketchup.) The key is to make extra of only the items that go well as leftovers. ;-)

4. Good tips on restaurants. My wife almost always brings home a doggie bag. Another suggestion for saving at restaurants: get many meals as a buy one get one free with an Entertainment Book.

5. Unfortunately, this is so, so true. There are many hurting people out there and almost any interaction with them will cause you to be very thankful for what you have.

Three Tips to a Great Resume

Yahoo offers three simple rules to having a great resume as follows:

1. Less is more. Don't tell too much. Your resume should read like a billboard, not an encyclopedia.

2. Use more keywords. You want the search engines to flag your resume for closer examination. Do this by including several keywords that are relevant to your job and your job skills, as well as specific industry words that may be appropriate.

3. Be specific. Don't just tell them what you did. Move beyond that and tell the benefit of your accomplishment.

Here's the commentary for tip #3, which is the tip I think is the most important of these three:

Include several specific ways you helped your employer make money or save money. Identify measurable results; use numbers. Remember, the only benefit you can bring to the table is past performance. When you interview (either phone or in person) this is what will be discussed. Think of all your jobs in the past and bring forth examples of some of your best work. How can an employer think of you as a problem solver? If at all possible, try to "monetize" your accomplishments (state them in terms of money). At the interview, you will be prepared to enlarge upon these successes.

In other words, quantify your accomplishments. Examples include:

• Led cost-cutting team saving the company $400k in three months.
• Initiated new marketing plan that grew sales 5.7% versus prior year.
• Created and implemented employee retainment program resulting in a 25.3% reduction in turnover.

You get the idea. Short, bullet points that show action (notice the action-oriented words at the start of each sentence), demonstrate results (notice the numbers in each sentence), and contain something meaningful (what company wouldn't want to cut costs, grow sales, or reduce turnover?) If you can do this, and have a lot of these examples all over your resume, you'll certainly have a winning resume (which is, one that gets you an interview.)

For those of you who want more examples/details, check out How to Write a Winning Resume and How to Make a Minor Accomplishment into a Major Resume Success.

Financial Planning for Pet Heathcare Costs: Start a Savings Account Now!

JD recently talked about the costs of pets, a subject I've covered quite a bit (to the dismay of many of you.) ;-)

Anyway, he brought up the idea of pet insurance and whether or not it was a good investment. I thought the following comment from one of the readers was especially useful:

I’m a veterinarian and get the question about pet insurance frequently. There are a lot of plans out there and I encourage people to do their homework. My understanding is that generally the premium starts low and remains low if you began insuring your pet when they are young and keep the policy active throughout their lives. Also, most plans work as indemnity plans (again, as I understand it). So, you’ll still need to pay the veterinarian’s fees up front and then be reimbursed by your insurer.

Nonetheless, I’ve had many clients tell me that they wouldn’t have been able to do life-saving procedures if it wasn’t for the insurance policy that they have on their pet.

Still, my advice is to begin an interest-bearing savings account for your pet while they’re young and put a small amount ($25/month over 10 years will get you a long way, even with specialty care) in each month for emergency and specialty care, not for routine care. (In this way, you don’t lose control of your money like you do when you pay a premium on an insurance policy.) Regardless of what kind of pet you own, you’ll need that money someday.

I think that the "$25 a month savings account" suggestion is a GREAT idea!!! As many of you know, one of the main costs of pets is later-in-life healthcare. So if you start early on and save over the life of your pet, you should have a really good nest egg saved up if/when your pet needs expensive treatment. Consider it a self-insurance plan. And, as he notes, you'll have access to the money in the meantime in case you really need it.

Or, you could do as I have suggested and simply increase the size of your emergency fund. I guess this idea is very similar to that, though it is a useful spin to keep the money separately as you'll be able to see how much you have accumulated for the express purpose of paying pet health expenses.

Anyone out there do this?

Experiences Trump Possessions

Here's an interesting piece from CNN that says experiences trump possessions. A recent study in San Francisco just determined that, in the long run, experiences make people happier than possessions. In other words, you'll be happier (on average) taking your family to Disney World than you will be buying that $3,000 work of art. The details:

The initial joy of acquiring a new object, such as a new car, fades over time as people become accustomed to seeing it every day, experts said. Experiences, on the other hand, continue to provide happiness through memories long after the event occurred.

The most striking difference was in how participants said others around them reacted to either the purchased object or experience. Experiences led to more happiness in others than purchases did. A sense of relatedness to others -- getting closer to friends and family -- may be one of the reasons why experiences generate more happiness.

"When people spend money on life experiences, whether they also take someone with them or buy an extra ticket or whatever, most of our life experiences involve other individuals," Howell said. People were fulfilling their need for social bonding while having these experiences, he said.

Another reason for increased happiness in experiences, the researchers found, was that people felt a greater sense of vitality or "being alive" during the experience and in reflection, Howell said.  "As nice as your new computer is, it's not going to make you feel alive," he said.

Most psychologists who study the phenomenon say people adapt to a new purchase in six to eight weeks, up to a maximum of three months, Howell said. That means the initial pleasure we get from a new possession generally fades in a matter of months.

Wow, this is very, very interesting to me. Why? Because much of our society is focused on getting more "stuff" -- a new car, a new boat, a bigger house, etc. In fact, we often see these as "assets", good financial decisions that will have at least some monetary value in the future. On the other hand, we don't value money spent on experiences (like a vacation) as much since it's "gone" and has no residual value. But in fact, what brings happiness (at least according to this study) is exactly the opposite. Quite interesting indeed.

Of course you can use assets to create experiences. For instance, you can buy a boat and take your family out on it every summer to create good memories, so the issue isn't black and white. In addition, this is one study, so there's still a lot to be found out about the relationship between assets, experience, and happiness. That said, it's intriguing to me that this study found what it did.

I know that we've relived several experiences over and over again as a family. We talk about our trip to Disney, times visiting relatives, outings we've had here and there -- all these are seen as the "best" parts of our family life. I can't recall a conversation we've had that focused on something we bought and how great of a purchase it was for our family. It just never seems to come up.

And one final point: experiences don't have to be expensive. Sure, we talk about our Disney trip with fondness, but we also talk about memorable soccer games, school plays, and times with family and friends that are special to us. None of these latter experiences cost us much at all. And yet they are among our most valued memories. Very interesting indeed...

Win a Free Mogul Game!

Welcome FMF newsletter readers! Here's your opportunity to win a Mogul game, courtesy of the game's creators.

I'm giving three free games away in this post (the game's creators will mail the winners their games). Here's how it will work:

1. All you need to do to enter is to leave any comment on this post. Be sure to leave your email address (no one else will be able to see it) when you leave the comment.

2. By the middle of April, I'll select the winners at random and announce the winners on this post.

3. I will email the winners, get their contact information, and arrange for them to receive their prizes.

As always, the standard rules apply.

Good luck! Post a comment below for your chance to win!

Win a Free Arby's Roastburger!

Welcome FMF newsletter readers! Here's your opportunity to win an Arby's Roastburger, courtesy of the people at Arby's.

I'm giving 10 free burgers away in this post (I'll mail the winners a card for a free one). Here's how it will work:

1. All you need to do to enter is to leave any comment on this post. Be sure to leave your email address (no one else will be able to see it) when you leave the comment.

2. By the middle of April, I'll select the winners at random and announce the winners on this post.

3. I will email the winners, get their contact information, and arrange for them to receive their prizes.

As always, the standard rules apply.

Good luck! Post a comment below for your chance to win!

Win a Free Copy of Quicken Deluxe!

Welcome FMF newsletter readers! Here's your opportunity to win a copy of Quicken Deluxe, courtesy of the people at Quicken!

Here's how it will work:

1. All you need to do to enter is to leave any comment on this post. Be sure to leave your email address (no one else will be able to see it) when you leave the comment.

2. By the middle of April, I'll select the winner at random and announce the winner on this post.

3. I will email the winner, get their contact information, and arrange for them to receive their prize.

As always, the standard rules apply.

Good luck! Post a comment below for your chance to win!

April 2009

Well, here we go! This is the very first Free Money Finance e-newsletter (for April 2009). This is an online version for those not able to read HTML emails.

Giveaways

As announced on my blog, I have several newsletter exclusive giveaways this month. Prizes include:

• 2009 Quicken Deluxe -- 1 copy

• Arby's Roastburgers -- 10 to be given away (info on the burgers here)

• Mogul games -- 3 games to be given away (info on the game here)

Here's how these giveaways will work:

1. Below there are links to each of the giveaways (made known only to readers of this newsletter). Click on the link(s) of the giveaway(s) you want to enter.

2. When you get to the post on my site, all you need to do to enter is to leave any comment on the post. Be sure to leave your email address (no one else will be able to see it) when you leave the comment.

3. By the middle of April, I'll select the winners at random and announce each winner on the specific giveaway post (in case you want to check back and see who won).

4. I will email the winners, get their contact information, and arrange for them to receive their prizes.

As always, the standard rules apply.

Here are the giveaway links:

• 2009 Quicken Deluxe

• Arby's Roastburgers

• Mogul games

Good luck!

On-Site Giveaways

I'll still have several giveaways on Free Money Finance in April. These were arranged before I started the newsletter and hence I told the sponsors that they'd be given away on the site. But at least I can give my newsletter readers a heads up to look out for these throughout the next month. ;-)

Here's what Free Money Finance will be giving away in April on the site itself:

• Sound Mind Investing (read my review of the book) -- I'll be announcing a giveaway of one of these books every Sunday in April.

• SmartyPig $50 gift card -- I'll give one of these away just like I did last month.

• Arby's Roastburgers -- 10 to be given away (in addition to the 10 only newsletter subscribers know about)

• Mogul games -- 2 games to be given away (in addition to the 3 only newsletter subscribers know about)

Keep an eye out for these as they'll pop up throughout the month (I'm still working on when.)

Blog Highlights

I had over 130 posts in March -- and some of them were even good. ;-)

In case you missed them, here are my favorite five posts of the past month:

• The Best Cash Back Credit Card

• 20 Ways to Make More Money

• How to Answer the "Tell Me About Yourself" Interview Question

• Trying to Earn More Money? Stop Wasting Your Time

• I Fought the Law and the Law (Mostly) Won

Finally, if you want even more personal finance articles/information, then follow me on Twitter. I post there on weekdays and include pieces I feel are good and yet don't make it on Free Money Finance for one reason or another.

Thanks for subscribing to this newsletter and for hanging in there with me while we sort out the kinks!

Quicken Versus YNAB

The You Need a Budget (YNAB) website has a page that compares its product to Quicken. In particular, here's what they say are the advantages of their software versus that of the "Big Q":

• Save More Money -- People following the You Need A Budget (YNAB) Methodology save, on average $235 in their first 31 days. Quicken would rather embed advertisements in their software to get you to spend more.

• No Costly Upgrades -- YNAB has never once charged for an upgrade. Quicken forces you to upgrade by crippling your software after a certain period of time.

• Software that’s Easy to Use -- Quicken is full of “bells and whistles” that you pay for, but they then sit and gather dust. Also, these extra useless features simply cause confusion and frustration. YNAB is built to have you focus on those things that actually bring results.

• Community and Support -- With Quicken you’ll get the standard corporate canned responses to emails, waiting in line in support queues, etc. With YNAB we offer free weekly coaching in a small class environment, and we have the friendliest forums on the internet. If you email us, an actual person responds!

They also include some quotes from people who used to use Quicken and now use YNAB. As you might expect, those people LOVE YNAB. ;-)

I've used Quicken for years and use a self-developed spreadsheet for budgeting. I have never used YNAB but have had many, many, many people say how much they like it.

Here's my take on what YNAB says above:

1. They kind of by-pass the issue of how much Quicken saves their users in the first 31 days, so I can't really comment on this. It could be more than $235 or it could be less, but they don't include that number. Instead, they focus on something unrelated, those annoying "ads" where Quicken asks you to buy something (which are easily ignored, BTW.)

2. It's true that you eventually need to upgrade Quicken as they phase out older versions. I upgrade every two to three years anyway, but it isn't cheap to do so.

3. I agree 100% that Quicken has a lot of bells and whistles that go unused. I basically use it for recording check, credit card, and cash transactions as well as updating stock performance. I also run reports regularly to get various data sorted the way I want it. I'd say I use about 10% of Quicken's abilities (simply a guess on my part) since I know it does so much more (but stuff I really don't need.) I wonder how much of its capabilities the average user uses.

4. Doesn't Quicken have forums for answers? I've never really needed support for it, so I can't say if it's good or bad.

In the end, I have so much historical data with Quicken that I'm "stuck with it." To switch now to a new system could be a big data headache or loss of information. Furthermore, I'm comfortable with it. It does what I want and gives me the data I want. So why would I want to switch to a new system? Maybe if I was starting from ground zero I'd look at other options, but I'm generally happy with it and don't feel it's worth it to switch.

How about you? Do you use either of these pieces of software? If so, which one and why?

(FYI, a comparison between Mint and YNAB is coming up soon.)

More Giveaways -- Announcing the FMF Newsletter

Over the past few weeks, things have gotten a bit busy here on the blog as the several posts each day get crowded with the various giveaways I have going. I LOVE giving away so much stuff, but I'm afraid it's interfering too much with the content of the site. But don't worry, I'm not going to stop giving stuff away. I'm just changing the way it will be given away. Which leads me to this announcement:

I now have a Free Money Finance newsletter!

I was originally make it a combination of giveaways, news, deals, etc., but for the short-term, it will focus mostly on giveaways (I have a backlog of them). The newsletter will give details on how you can win the various prizes coming (Quicken, more SmartyPig cash, Arby's Roastburgers, Mogul game, books, etc.) and MIGHT include some other content, though there's no promise of that for now.

So if you're interested in winning one of these (or other prizes TBA), simply sign up for the Free Money Finance (giveaway) newsletter!

FYI, I will have some giveaways on the site and at Twitter, but these will be much reduced compared to what you've seen as of late.

How to Answer Six Common Interview Questions

I've noted previously that before any interview you should rehearse your answers to common interview questions. And if you really want to fine-tune your responses, you'll even want to take a few practice interviews. Why? Because being able to clearly and concisely give great answers that demonstrate your quantifiable accomplishments is something that will get you hired.

In order to help in this process of developing answers to common interview questions, Yahoo lists six of the most common interview questions as well as sample responses. Their thoughts:

• "What are your strengths and weaknesses?" -- Tailor your "strengths" answer to skills that will benefit the prospective employer. When it comes to weaknesses, or areas of growth, Olson recommends building on your answer to include "how you have improved, and specifics on what you have done to improve yourself in those areas."

• "Why did you leave your last position?" -- "Be prepared to tell the truth, without speaking negatively about past employment."

• "Can you describe a previous work situation in which you ... ?" -- "The key to responding well is preparing real job examples, describing your behavior in specific situations that demonstrate important skills that the job requires."

• "What is your ideal work environment?" -- This question is not about whether you prefer a cubicle or an office, so think broadly to include ideas about supervision, management styles, and your workday routine.

• "How do you handle mistakes?" -- "Employers want to know they're hiring someone with the maturity to accept responsibility and the wherewithal to remedy their own mistakes," says Debra Davenport, a master professional mentor and columnist for the Business Journal in Phoenix.

• "What is your most notable accomplishment?" -- "Being able to quantify your achievements in your career will launch you ahead of the rest," she says, "and demonstrate your ability to do the same as a future employee."

My thoughts on these:

1. For strengths, I always go with things required for the job (organization, leadership, etc.) Of course, you need to think through these before the interview and develop several responses along with examples to back up your thoughts. For weaknesses, I'm now going with the "I had this problem but worked/am working on it" response.

2. My "pat" answer for leaving the last position is that it wasn't challenging enough -- that I had hit the ceiling and needed more responsibility, opportunity, and, yes, compensation (I throw the last one in here in an almost after-thought sort of way, but it gets the point across -- they shouldn't think they can get me for the same amount of money I'm currently making.)

3. Of course I can, how many examples do you want? I prepare several different work-related stories that show my skills from a variety of angels. Then when they ask this question, I pop out the examples that fit the best.

4. Again a "pat" answer: I like an environment where I'm given my objectives, told to accomplishment them, and left alone to deliver the results (I also throw in a couple examples here where I was allowed to do this and it went very well for the company.)

5. There's only one answer to this: "I take responsibility for the mistakes, learn from then, and then move on, making changes so they never happen again." (BTW, a smart aleck answer like, "I don't know, I'll let you know when I make one" gets you negative ba-zillion interview points.)

6. I usually pick something that delivered amazing results (sales, profits, cost-savings, etc.) to the company I worked for. I also comment that it wasn't just my efforts but a team result (shows not only the ability to lead and get results, but hints at people skills and humility -- very good combinations.)

How about you? Any suggestions for answering these questions?

Win a Free Entertainment Book!

I've written about how to save money with an Entertainment Book and now it's your opportunity to win one and try it for yourself!

Here's how it will work:

1. All you need to do to enter is to leave any comment on this post.

2. In addition, you'll get a bonus entry if you follow me on Twitter (all my Twitter followers are automatically entered in the giveaway.)

3. Sometime in the next few days, I'll select a winner at random and announce with a new post that a winner has been selected.

4. It will be the winner's responsibility to email me their contact information.

5. I'll then send the winner's information to the Entertainment Book people and they'll work out getting the prize delivered.

A few rules for these giveaways:

1. I will be the complete and final judge.

2. Legal disclaimer: I can not guarantee safe delivery of the items. I've worked with the Entertainment Book people a bit and they're great, so I'm sure it will all work out smoothly. That said, I won't be held accountable if there's a mess up.

3. If you win something and do not contact me within a week of winning, I reserve the right to give your prize away to another winner. I won't track down the winners -- it's your responsibility to come back and see if you won.

4. Local laws, rules, and regulations apply.

5. Winners are restricted to the US and Canada.

Good luck! Post a comment below for your chance to win!

Free Money Finance March Madness, Sweet 16, Posts 13-16

We're now down to the Sweet 16 of Free Money Finance March Madness (if you wonder what's going on in these posts, see my article announcing March Madness and/or click on my March Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword(s) after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1 - Saving; Game 2 - Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 7

• A Story About Banks; They Are Not In The Real Estate Business (Banks) - This is the story of two men who had their dreams: one wanted to make money from his own farm and the other wanted to make money from the others through lending. By reading this story, you will understand how banks got into so much troubles.

VERSUS

• What the Volitile Market Tells Us About Ourselves (Market) - I think this is a great blog - even I have to say so myself. I like it because it provides a realistic assessment of the economic situation at the time which is not pie in the sky or chicken little and it hopefully helped readers get their feet on the ground and realize that their emotions were the greatest financial obstacle they face.

GAME 8

• Tips for College Graduate (Graduate) - So many college graduates are unaware of how important it is to begin a financial life with the right foundation.  I offer ten key, finance, tips for the recent college grad.

VERSUS

• The College Student Debt Machine:  A National Disgrace (Disgrace) - This post exposes the shameful and often ignored failure of colleges and universities to control their own budgets.  Concurrently, these same colleges freely encourage their students to use student loans to finance the ever increasing costs to attend.  With no one held accountable, young adults graduate with crushing debt that takes years to repay.

TaxCut Premium Federal Winner Named!

Just wanted to let you know that I named the winner of the TaxCut giveaway announced on Friday. Click on the link in this post and scroll to the bottom of the new page to see if you've won.

FYI, if you didn't win this week, there are more giveaways coming up. Sign up for the FMF newsletter to hear about them.

Review: Sound Mind Investing

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

I've written before about financial books that can change your life (which lists the top five financial books I recommend). One of the books that is not on that list but certainly could be is The Sound Mind Investing Handbook - A Step-By-Step Guide To Managing Your Money From A Biblical Perspective 5th Ed. It's a book I first read 15 years ago or so (it's now in its fifth edition) and I loved it. Since then I have recommended it to both Christians and non-Christians who are just getting started investing as well as those who have floundered and want a strategy that works. I have even purchased a few for friends and they always get rave reviews.

My quick summary of the book is that it's a Christian how-to-invest publication. I'll get into what that means a bit later on, but here's a bit more detail on the book from Amazon:

Many excellent books teach God's principles of finance. Perhaps one or more of them has helped you lay a strong biblical foundation for carrying out your money management responsibilities. But as you try to apply those principles to making real-life investing decisions, it's easy to feel overwhelmed by the jargon and the sheer number of investment possibilities.

Investment adviser Austin Pryor has carefully created the "next step" guide that helps you put Godly principles of finance into motion. Whether you're a beginner or an experienced investor, you'll benefit from stepping across this bridge between "theory" and "action". Each user-friendly lesson is written in everyday English and filled with helpful visual aids. In this revised and updated edition of The Sound Mind Investing Handbook, you'll learn

• What investing is and why it's actually quite simple
• Six characteristics of investing that glorifies God
• What important steps to take to prepare yourself financially before invest
• What mutual funds are and why they make investing easier than ever before
• How to use your personal investing "temperament" and present "season of life" to make decisions and limit your risk
• How to implement an investment strategy that's guaranteed to help you keep pace with the markets
• Tax-wise ways to invest for college, including the state-sponsored 529 savings plans
• The pros and cons of investing internationally
• The rules governing IRAs and 401(k)s and which should have the priority
• How to make the calculations needed to make sure your retirement countdown is on schedule

College professors have even used this book in their finance classes because of its easy to understand format. So, whether you invest a little or a lot, these biblical principles apply to you. In short, he's made learning about investing as painless as it's going to get.

This is exactly what the book is -- a simple, easy-to-understand guide to investing according to the wisdom of the Bible.

Here's a brief "what this book is about" summary from the book itself:

The foundation of every successful investment program begins with a clear understanding of one's motivation: "What's my purpose in investing?" For the Christian, the answer is two-fold: (1) to provide financially for the needs of your household, and (2) to increase your assets to serve God more fully. This book was written to help you do both.

For non-Christians, the book is a solid choice as well. You can simply ignore the "to serve God more fully" parts.

Here are the specific reasons I like this book so much:

• It's from a Christian perspective. Other investing books will tell you how to invest, but this one will include biblical back-up and references for what it advises.

• It's easy to understand. The book takes you through a step-by-step process for understanding and making investments. Even the most novice investor can "get" what this book is talking about. And yet it's detailed enough that more advanced investors will get something from it as well.

• Simple philosophies. Their various investment strategies are simple to understand and implement. Again, they make what can be a confusing subject very clear.

• Index fund option. Their "just-the-basics" strategy invests in index fund and is a strategy very similar to what I do personally.

• Other solid money advice. The book is full of great non-investment advice (usually in sidebars) with sections like "12 Warning Signs of Excessive Debt," "Big Savings through Mortgage Pre-Payments", and "Questions to Ask When Shopping for a Money Market Fund."

• Great results. In particular, their "fund upgrading" strategy has delivered superior results over the past ten years.

I'm sure many FMF readers have already read this book. If so, I'd be interested in your thoughts on it and if your takeaway was as positive as mine.

Update: Sound Mind Investing also has a website that offers articles, investing advice, etc. -- information based on the book and more. Check it out to see if it's something you'd be interested in or check out a review of the website here.

Social Security 2: File Early If You Plan to Die Young

The following is a guest post from Marotta Asset Management.

Social Security may be a Ponzi scheme, but it differs in one important way. Those who get paid early won't have to give the money back. Perhaps this explains why many people choose to start taking payments as soon as possible.

About half of all Americans file early for Social Security at age 62. In addition to their concern that promised payments may dry up in the future, many other factors motivate them. Some are behavioral finance mistakes, but others are legitimate.

Filing early exacts a steep price. Your Social Security benefits are permanently cut to 25% less than the amount calculated at full retirement. In 2009, full retirement benefits require waiting until age 66. So filing at age 62 translates to several years of early payments followed by getting 25% less for the rest of your life. Waiting beyond age 66 means getting extra benefits above the full retirement amount. Waiting until age 70 results in receiving 132% of full retirement benefits. People who file early receive about 44% less Social Security income over their lifetime than those who wait until age 70 when the maximum benefit is available.

Consider the case of aging rock star Capitan Danger. After decades of free love and rocking on, he finally began working steadily after he reached 50. By recording soundtracks for video games, he now has more than 10 years (40 quarters) of on-the-books income that has qualified him for Social Security benefits at age 62. At this point Danger has to decide if he wants to take retirement benefits early or wait until as late as age 70 to receive the highest benefit.

Studies show that if we refrain from smoking, exercise regularly, only drink alcohol moderately, and eat five servings of fruit and vegetables a day, we will enjoy an average of 14 additional years of life compared with people who adopt none of these behaviors.

Capitan Danger adopted none of those behaviors.

Although the average 62-year-old might live another 19 years, Capitan Danger will be lucky to survive more than 5 years. His body is beat up from his heroin addiction in the 1970s, and alcohol abuse has damaged his liver. And of course he doesn't ever pay much attention to the future consequences of anything.

Capitan Danger should file early for Social Security benefits. He can make his decision independently. Although he has known the love of many women, he never married any of them. One of the characteristics he seeks in a partner is her ability to support his lifestyle. Accordingly, his current girlfriend is years from retiring and earns more than he does anyway. She certainly won't need or be eligible to claim his Social Security benefits when he dies.

During retirement the Capitan has a disincentive to work. He must not earn more than $14,160 in 2009. Any overage will be taxed at 50%. That's fine with Danger because working too hard cramps his musical style.

He would have received a monthly benefit of $1,562 if he had waited until age 70. Beginning at 62, however, Danger will only get $887. By starting his Social Security payments early, he will realize $95,823 in today's dollars by age 70. It takes a while for the larger benefit that comes from delaying filing to overcome the immediate windfall of starting early.

Danger's break-even point is at age 80. He will receive the greatest benefit from filing early if he dies exactly at age 70. After that, no benefit will accrue in delaying his retirement income. He will no longer receive the delayed retirement credits that increase his benefit 8% in addition to the cost-of-living adjustment for each year he waits. If the Capitan lives to 82, he will have lost $20,016 by taking benefits early. At age 90, he will be $84,750 behind, and by age 95 his present hedonism will have cost him $125,209.

Sadly, Danger's hard living catches up with him and he dies at age 69, having used his extra retirement money as deposits on costumes and venues for a failed reunion tour of The Thankful Corpse, his former band.

People with shorter life expectancies and singles who will not be passing their benefit along to a surviving spouse are the best candidates for filing early for Social Security. Others are better off looking at other options. Women obviously tend to live longer than men. But Social Security does not discriminate by gender, so single men have an actuarial incentive to file before single women. Both minorities and poor people typically live shorter lives, which is also an incentive to file early.

You can see how critical it is to plan carefully before you file for Social Security. Because of all these moving variables, maximizing benefits changes every year as the age to file and receive full benefits keeps advancing upward. And it changes with every retiree's specific situation. But in each case, analysis begins with an estimate of projected benefits for both you and your spouse.

If you do not have a copy of the benefits estimate that Social Security sends out annually, you can request it at www.ssa.gov/estimator and then print the results. Or call the Social Security Administration at 800-772-1213. You can also get a copy of "Retirement Benefits" (Publication No. 05-10035) online.

Click here to read part 3 of this series.

Help a Reader: Condo Questions

Here's an email I recently received from a reader:

I will be getting married and moving from an East Coast city to the Western city where my husband-to-be lives. I will likely be able to transfer my East Coast job (and East Coast salary) to a place where the cost of living and housing is far lower--which is great. Now I just need to figure out what to do with my condo.
 
Here's the situation: I bought a one-bedroom condo five years ago at $220k. I've made it a point to pay down my mortgage, and I currently have a balance of about $162k. About $500 of my payment goes toward principal each month, with the rest going to interest, taxes, etc. As you might expect, housing prices have fallen, and my best guess is that I'd put my condo on the market for about $180k today, maybe less. It's hard to say, though, because so little is actually moving.
 
I really, really would like to avoid losing so much money if I can. A woman I know is interested in possibly buying my condo, as she looked at another unit in my building a couple of years before. She's open to either an outright purchase OR a rent to own situation.
 
So I'm trying to figure out my best strategy, going forward. Is it:

1. Sell at a loss, and comfort myself with the fact that a) I may be able to avoid realtor fees and b) I will be living in a city where I can now buy a four-bedroom house for the original purchase price of my condo.

2. Rent to own for 2-3 years, thereby paying down the principal another $10k or so--and letting both prospective seller (me) and prospective buyer (her) hedge their bets a little bit in terms of where the housing market is going (in the sense that we can both walk away from the deal if it's a bad one)

3. Rent the unit indefinitely....in the hopes that housing prices will eventually head back up....like when my grandchildren go to college?

4. ?????

What advice do you have for her?

Books About the Ultra Rich

For some reason, I've been reading (listening to really, I don't read much these days but do listen to a lot of books on CD) several books on the mega-rich -- people with hundreds of millions of dollars or even billions. Here are the ones I've covered as well as a summary of each of them from Amazon/Publishers Weekly:

• Rich Like Them: My Door-to-Door Search for the Secrets of Wealth in America's Richest Neighborhoods (4 stars) -- While academics frequently conduct research to try to unlock the secrets of garnering great wealth, Esquire editor D'Agostino took a more direct—and more entertaining—route: he picked the 20 wealthiest neighborhoods in America and went door to door, garnering interviews with 50 very wealthy, very different individuals—including doctors, art dealers, real estate moguls and one shrimp-peeling–machine manufacturer. Many of the author's subjects confessed that they have been less motivated by a drive for wealth than a desire for a certain lifestyle, an obsession with a certain field and a need for independence, and that focus, passion and street smarts have contributed more to their success than luck or any formal training. Several of his interviewees leveraged their success through reinvestment, often in real estate, raising the question of how well their net worths have survived in the current credit crunch. While D'Agostino freely admits that his sample is far from scientific, weighted heavily to friendly people who happened to be at home when he went calling, his debut is witty and inspiring.

• Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich (4 stars) -- When Frank, a columnist for the Wall Street Journal, began noticing that the ranks of America's wealthy had more than doubled in the last decade, and that they were beginning to cluster together in enclaves, he decided to investigate this new society, where $1 million barely gets you in the door. The Richistanis like to consider themselves ordinary people who just happen to have tons of money, but they live in a world where people buy boats just to carry their cars and helicopters behind their primary yachts, and ordering an alligator-skin toilet seat won't make even your interior designer blink. But Frank doesn't just focus on conspicuous consumption. He talks to philanthropists who apply investment principles to their charitable contributions and political fund-raisers who have used their millions to transform the Colorado state legislature. He also meets people for whom sudden wealth is an emotional burden, whose investment club meetings can feel like group therapy sessions. It's only in the final pages that Frank contemplates the widening gap between Richistan and the rest of the world—for the most part, his grand tour approach never loses its light touch.

• All the Money in the World: How the Forbes 400 Make--and Spend--Their Fortunes (Vintage) (4 1/2 stars) -- Two accomplished New York writers, Bernstein (coeditor of The New York Times Practical Guide to Practically Everything) and Swan (coauthor of Pulitzer Prize-winning bio de Kooning) delve into the Forbes 400, that august group of rich folks ranked each year since 1982 by the business magazine of the same name. Not only businessmen and women, but sports stars, entertainment figures and wealthy heirs are profiled in fascinating detail, but the authors eschew the magazine's list format for a topical taxonomy that includes "blue collar billionaires," "West Coast money," "giving it away" and, naturally, "power and politics." Among dramatic stories of cutthroat competition, outrageous spending habits, skirmishes with the law and family feuds, intriguing observations abound, such as the admonishment that "as a rule, the Forbes 400 is not for the fainthearted," but those with the fearlessness and "winner-take-all outlook" to "turn convention on its head, or destroy an old business model in the interest of a greater good and larger profits." Sidebars cover tangential topics like trophy wives, palatial homes, the small Silicon Valley town (Woodside) that's the nation's sixth wealthiest, and blurbs from the original Forbes lists. Full of colorful characters and meticulous research, this book is inspired, insightful and lots of fun.

Personally, I really liked Richistan (I found it interesting, insightful, and fascinating) and didn't care as much for All the Money in the World (it seemed pretty dry to me.) I just started Rich Like Them and I think I'll like it. But it's too soon to tell.

Anyone read any of these? Thoughts on them?

BTW, I also recently saw part of Born Rich but couldn't watch more than a half hour of it. Someone needs to tell those rich kids to get rid of their potty mouths -- watching it was vulgar, and certainly didn't make me feel good about the people on the screen.

More Giveaways -- Announcing the FMF Newsletter

Over the past few weeks, things have gotten a bit busy here on the blog as the several posts each day get crowded with the various giveaways I have going. I LOVE giving away so much stuff, but I'm afraid it's interfering too much with the content of the site. But don't worry, I'm not going to stop giving stuff away. I'm just changing the way it will be given away. Which leads me to this announcement:

I now have a Free Money Finance newsletter!

I was originally make it a combination of giveaways, news, deals, etc., but for the short-term, it will focus mostly on giveaways (I have a backlog of them). The newsletter will give details on how you can win the various prizes coming (Quicken, more SmartyPig cash, Arby's Roastburgers, Mogul game, books, etc.) and MIGHT include some other content, though there's no promise of that for now.

So if you're interested in winning one of these (or other prizes TBA), simply sign up for the Free Money Finance (giveaway) newsletter!

FYI, I will have some giveaways on the site and at Twitter, but these will be much reduced compared to what you've seen as of late.

Not Really Another Post about How You Should Move to Save Money

I know many of you hate my on-going posts about how cost-of-living in one area versus another makes a huge impact on your finances (in fact, it's my most-hated piece of money-saving advice.) Well, this is NOT another post about that subject. At least exactly. It's kind of related -- but this time, it only deals with me.

In my last post on the dreaded subject noted above, one commenter made this pitch:

FMF - Wow, I never realized you lived in such a populated area. You should really consider moving to a more rural area. It'll probably mean taking the $70K job instead of the $100K city job, but someone making $70K with a family doesn't hardly owe taxes, so in the end is much better off than the $100K job in your area, especially when factoring in the price of housing.

Sure you have all those minor league ball teams, botanical gardens, local/regional museums, traveling shows, but how often do you really use those things? Here what we do have in rural america: nice affordable roomy 50 acre lots with solid built, beautifully designed unique huge 100 year old victorian homes for under $100K. Sure living in a county with under 40K people isn't everyones cup of tea, but it beats living like a goat caged in on 2 acres. And trust me, with your $70K salary you are one of the richest people in the county.

Its your money and if you want to live in a built up area, thats a good enough reason, but as someone who says they are trying to live a financially fit life, consider what that overly populated place is costing you. Sure I guess some people like the coziness of being able to see their neighbors from their yard, but you'll always be fighting against the grain when it comes to accumulating wealth. And remember, just because rural life is different, it doesn't mean it isn't better.

Sorry for the preaching ;)

Very nice, indeed. ;-)

I responded that he (she?) was right and that I was immediately looking for a place in Wyoming. I'm sure it's very cheap to live there!

Then I ran into this piece from Lifehacker that lists the 10 most and least affordable cities in the US. The 10 least affordable are no surprise if you've been reading FMF for any time now, but for the record they are:

1. New York-White Plains-Wayne, NY-NJ
2. San Francisco-San mateo-Redwood City, CA
3. Nassau-Suffolk, NY
4. Los Angeles-Long Beach-Glendale, CA
5. Miami-Miami Beach-Kendall, FL
6. Santa Ana-Anaheim-Irvine, CA
7. El Paso, TX
8. Newark-Union, NJ-PA
9. Honolulu, HI
10. Seattle-Bellevue-Everett, WA

And the most affordable:

1. Indianapolis-Carmel, IN
2. Warren-Troy-Farmington Hills, MI
3. Youngstown-Warren-Boardman, OH-PA
4. Detroit-Livonia-Dearborn, MI
5. Grand Rapids-Wyoming, MI
6. Syracuse, NY
7. Dayton, OH
8. Akron, OH
9. Cleveland-Elyria-Mentor, OH
10. Scranton-Wilkes-Barre, PA

Look at that! My city is #5 on the most affordable list. How did that happen? And how did Detroit get above it (BTW, "Detroit" is at both #2 and #4)? Oh yeah, they're selling homes for $1 there. Very affordable indeed!

Notice what else it says next to Grand Rapids? Wyoming! I knew it was cheap there!!!!! ;-) (For those of you who don't know, Wyoming is a major suburb of GR. We go there frequently since many of our friends live in the area and our church is there as well.)

Also interesting on the list is #1 -- Indy! I lived there once. Nice town. Go Colts! (FYI, we also lived in Pittsburgh once, so this year it was "Go Steelers!")

Anyway, I'm not so sure that Wyoming (the state, not the GR suburb) still isn't cheaper. If I can get a 50-acre lost with a home for under $100k, maybe I should consider moving. That said, it's good to know that my present location is among the best deals in the country. ;-)