Free Money Finance

Six Ways to Cut Mortgage Costs

I've shared my formula for buying a house which should help minimize mortgage costs. This piece from Smart Money adds to that with their six tips on saving on mortgage costs. Their tips:

• Polish Your Image
• Get the Right Loan
• Make a Down Payment of at Least 20%
• Consider Paying Points
• Pay Closing Costs Upfront
• Pay Close Attention to Fees

In particular, I like what this piece has to say about making a downpayment:

In this new era of interest-only loans, many home buyers are skipping this advice. But if you can swing it, this is still the way to go. Not only will this provide some equity in your home, but it's also a way to avoid private mortgage insurance, or PMI. Costs for PMI can be significant over time — about $40 a month per $100,000 of the loan, according to estimates by the Federal Trade Commission.

This is part of my formula I noted above and sound advice in my opinion. I've also written about the PMI issue and agree with Smart Money's thoughts.

Next to your career, your house is probably the biggest asset you have, so taking sound advice when buying (and selling) it is very important. (I know, that's an understatement.) Here are some more links on the topic that may help you out when it comes to getting the house you want:

• To Pay or Not to Pay Off Your Mortgage
• The 3 Worst Reasons to Buy a House
• 7 Home-Buying Traps

Money Saving Tip for How to Spend Less

Here's a piece from Yahoo on how to spend less. The article also addresses how you can be happy while doing it. But what I liked the best was this money saving tip that was embedded deep in the article:

Bottom line: Before you buy anything, ask: Do I truly value this? By making value-driven decisions, saving will be become a regular part of your life.

This is similar to the two day rule I wrote about last July. I can attest that it really works.

When I want/need something, I record it on a list in my Palm and forget it until I go shopping. When I know I'm headed out, I look at the list and decide what I will buy that day. About 50% of the time, I find that I really don't need everything on my list and I delete an item or two. I've probably saved thousands of dollars using this system.

I've also tried the tip noted in the article above, but it doesn't work as well for me. When I'm in the store, have the item in my hand, and I ask myself if I need it, the answer is almost always "yes." It's not that it never works -- I have used it successfully before -- but it's not as good as the two day rule for me.

What about you? Does either of these keep you from buying things you really don't need? Or do you have another system that does?

'Generation Debt' is Going Deep into the Red

Here's a piece from MSNBC on how 20 and 30-year-olds are going deep into debt. A summary of the situation:

Many twenty- and thirtysomethings raised on MTV and InStyle magazine have tried to mimic the glamorous lives of the rich and famous through the use of credit cards. But as the 21st century has ushered in skyrocketing housing prices, stagnant income levels and five- or six-figure student loans to pay off — a seismic shift has occurred: A growing number of young adults are reassessing their lifestyles and mimicking the frugal habits of their Depression-era grandparents. They clip coupons, organize grocery-shopping trips to Sam's Club instead of darting to Whole Foods and now consider a $4 cappuccino as an infrequent luxury.

The piece goes on to lament this trend.

What? You mean you can't spend like wild all of your life -- you actually have to spend less than you earn? The tragedy of it all!!!!

What's going on here? Do these young people really think that they can spend like crazies and not eventually have to pay for it? And why does it seem like a disgrace to cut coupons or visit Sam's? Where did this attitude come from? My thoughts on possibilities:

• Lack of training from parents/educational system on proper handling of finances
• Advertising/TV shows that encourage the thought of "you deserve the best" and that "the best" is always expensive
• Loose credit policies and slick marketing from credit card companies
• Simply selfishness/attitude that this generation has grown up with
• It's really not this way -- MSNBC is just trying to hype a situation that doesn't exist

I'd like to hear what you think. Any of these right? If so, which ones? If not, what is?

10 Nasty Money Habits to Kick

What would you list if someone asked you to name the nastiest money habits? Money Central offers ten in this piece and I want to share with you the ones I think are the worst:

• Spending without a budget.
• Carrying a balance on credit cards.
• Not investigating disability insurance.
• Failing to see how little purchases add up.
• Not matching employer's contribution to retirement.
• Paying everyone else, saving "what's left."
• Not managing your investments.

Just for the record, the other three are either subsets of one of these seven or not in the league of "nastiness" that these are.

I've written on all of these, so I'll mix past posts in with my thoughts.

Budgeting -- There are several advantages of budgeting with helping you keep more cash right at the top of the list. You doubt that? Ask the average millionaire. He has a budget and it's been a key part of him becoming a millionaire. As far as my recommendation, I suggest you select one of three ways to track your spending and if you go with the electronic option that you select You Need A Budget.

Credit card balance -- If you have a budget and only charge what's in that budget, you should never have a credit card balance. Of course you may be in debt now, so first you'll want to get out of debt and pay it off one of these nine ways. (Also see Strategies for Dealing with Credit Card Debt). Then, once you're out of debt, be sure not to get back into it. Be aware of credit card hazards and how to avoid them and avoid the four credit card traps and follow the eight commandments of credit cards. (BTW, one key to avoiding credit card debt is to set up an emergency fund. Free Money Finance recommends Emigrant Direct for emergency savings.)

Disability insurance -- You must have disability insurance. Based on the odds, there's a better chance you'll use it than that you'll use life insurance.

Little purchases -- Even a small leak can empty your money bucket quickly. If you can control your spending, you can become wealthy.

401k match -- Not getting your full 401k match is one of the 12 biggest money mistakes you can make.

Saving last -- You need to pay yourself first. It's the main point in The Richest Man in Babylon, one of the top money books of all time.

Investments -- I disagree with them a bit on this one. I don't think great investments take a lot of management. I prefer an investment plan that takes 15 minutes.

Comments: Raising Your Quarter-Million Dollar Baby; Money Saving Tips

Here's a comment on my Raising Your Quarter-Million Dollar Baby post that contains some great money saving tips:

There are also lots of ways that you can save money on babies. (since your tips above mostly pertain to older kids-except the clothes. I don't think my kids own much of anything that was bought new unless it was a gift!)

#1 Breastfeeding of course saves tons of money over formula

#2 you can make your own wet wipes for a fraction of the cost

#3 make your own babyfood-which is cheaper, pretty convenient (you just steam veggies or fruits, blenderize it, and freeze in icecube trays) and way healthier because it doesn't have any fillers or additives

#4 don't overbuy toys. For the first 2 years of each child's life we didn't buy them almost anything for Christmas. #1, they were so small they couldn't tell the difference anyway, and #2 they got so much stuff from relatives that it was ridiculous. As they get older we have bought a few more things, but we try hard not to go overboard.

Good stuff!

Any other ideas out there on how to save on kid-related expenses?

Net Worth in the News

I've recently stumbled upon several pieces on net worth in the press (all focusing on the same Federal Reserve report -- from different angles) and wanted to share those with you today.

Here's the list:

Briefs: Wal-Mart will widen health care eligibility (scroll down a bit) - Growth in U.S. family wealth slowed to a crawl from 2001 to 2004. Median net worth rose 1.5 percent to $93,100 during the survey period, down from a 10.3 percent gain from 1998 to 2001. Net worth fell for the bottom 40 percent of U.S. families. The net worth of the wealthiest 10 percent of U.S. families rose to a median $924,100 in 2004 from $887,900 three years earlier, a 4 percent rise, the report showed. Net worth for the poorest 10 percent of the population fell 11 percent, to $7,500. (Yes, the rich keep getting richer -- for good reason.)

Debt, lower wages clip net worth growth -  Americans' net worth grew between 2001 and 2004, but not nearly as strongly as it did between 1998 and 2001, according to the Federal Reserve's triennial Survey of Consumer Finances released Thursday. The big reason: while household assets increased, debts – particularly mortgage debt -- rose considerably more. A few more highlights:

• Income: A decline in wages also helped account for the slow growth in net worth.
• Savings: The percent of families who said they'd saved in the preceding year fell 3.1 percentage points, to 56.1 percent.
• Assets: The percentage of families who owned assets rose 1.2 percentage points to 97.9 percent. The median value of all assets combined rose 10.3 percent to $172,900.
• Debt: The share of families with debt rose 1.3 percentage points to 76.4 percent.
• Stock ownership: The percentage of families investing in stocks, directly or indirectly through mutual funds, fell 3.3 percentage points, to 48.6 percent.

Midday Business Report: Job indicators give mixed (scroll down) The Fed survey found that debts as a percent of total assets rose to 15 percent in 2004, up from 12.1 percent in 2001. Mortgages to finance home purchases were by far the biggest share of total debt at 75.2 percent in 2004, unchanged from the 2001 level.

Summary: People are borrowing more and saving less and only an unprecedented increase in the values of real estate (not stated directly, but implied) has kept them a bit above past levels of net worth. It's a scary situation.

FMF recommends Emigrant Direct.

Seven Career Killers

Your career is your biggest asset (unless you have inherited a trust fund or won the lottery). It enables you to buy the necessities you need to live and accumulate all the other assets (home, investments, etc.) that help to grow your net worth. As such, you need to actively manage your career and make the most of it since doing so will make a big impact on your finances.

This piece from Kiplinger's lists seven career killers -- things you do NOT want to do if you want to maximize your earning potential. Their list:

1. Procrastinating.

2. Having a sense of entitlement.

3. Settling into your job description.

4. Avoiding office politics.

5. Not being a team player.

6. Not dressing the part.

7. Failing to network.

I've seen all of these in my career, and yes, they are all bad -- and can lead to significant career problems for you. And career problems and lead to money problems.

Your best defense against any of these (or any other career-limiting traits): 1) deliver results and 2) have a good attitude. You could be an ape who does all of these seven, yet if you save the company tons of money and/or bring in lots of sales and you're pleasant, you're set. In fact, you'll not only be tolerated, but you'll get promoted.

It's either that or marry the boss' daughter. ;-)

FMF recommends Emigrant Direct.

Annual Pet Costs and A Money Saving Tip (Get a Cat)

When I point out the cost of pets (as I'm apt to do once every two weeks or so), the biggest reaction I get is, "I don't spend anywhere near that on my pet." IN my view, people who make this comment are either 1) really good savers (which means everyone else is spending a TON on pet costs because the averages are the averages), 2) unaware of what they're really spending on pets, or 3) lying. My guess is that most people fall into group #2. It's the reason I keep bringing up the issue: people just don't realize how much their pets are costing them.

But know one believes me -- they think I'm just an animal hater (which I'm not) or a cheapskate (which is not true, though closer to the truth than the animal hater thought). So I've gone out and found pro-animal sources to see what they estimate as the cost of having a pet. I'll be sharing their thoughts with all of you over the next few weeks.

Our first source in this series is Paw Prints and Purrs, a group that rescues and cares for dogs and cats. Here are their thoughts on annual pet costs:

• Large dog -- $1,500
• Medium dog -- $1,115
• Small dog -- $780
• Cat -- $640
• Rabbit -- $885
• Guinea Pigs -- $745
• Gerbil or Hamster -- $455
• Bird -- $235
• Fish -- $185

These are costs for the first year. Some of these costs (spaying, fish tank, etc.) are one-time only. Also, since they are for the first year, the medical costs (which are the REALLY big animal care expenses) are probably understated. As animals get older, they can need some pretty major medical care. Don't believe me? Check out Comments: Sell Your House to Save Your Pet's Life, Comments: How Much Would You be Willing to Spend to Save Your Pet's Life?; A Lot, or Financial Horror Stories from Pet Owners.

It's also interesting to see the cost of a cat. Many people have suggested "get a cat" as a pet money saving tip, and it looks like that is the best choice of the dog/cat (the two most popular pet choices) decision. A cat's even a better deal than a small dog (though some cats are bigger than small dogs -- all my cats have been!)

In the end, having a pet is a financial choice like anything else (in that saying "yes" to some things means you'll have to say "no" to others) and totally up to you. I'm just pointing out the cost of such a decision.

The Best Ways to Negotiate a Higher Salary

Who wants to be paid more? Oh, that many of you, huh? Well, you've come to the right place then because this next article from Money is on the best ways to negotiate a higher salary. Money's tips:

When asked what was most likely to persuade them to sweeten their offer, the largest group (34%) said they want to hear you explain why you're worth more by highlighting specific accomplishments.

Another 30% said they rely on references from past and present peers and bosses in deciding whether to offer you more money, so try to make sure these people will give you rave reviews.

Let's say you get a juicier offer from another prospective employer. Should you use it as a bargaining chip? Probably not: Only 13% of the hiring managers polled said that would sway them.

In my career, I've been hired and been the one hiring, so I can see the situation from both sides, and this advice makes sense. If someone can show that he/she is worth more by demonstrating how they've been able to deliver strong business results, a few extra thousand dollars can usually be found.

You have to remember that when an employer offers you a job, they're at the end of what has probably been a long and difficult road -- they've been short-handed for awhile -- and they want to see it end quickly. They've spent lots of time and energy finding you and now that they've made the decision, they want you on board immediately. Under no circumstances do they want to start the process over (and even going to the #2 choice often feels like a defeat). So if they have to find you a bit more, especially if you present it in the right way, it shouldn't be that big of a deal.

Only one time in my career did I ask for more and the guy said, "nope." That's it, he just said, "nope" and gave no explanation. Needless to say, I didn't take the job. (And I'm glad I didn't -- it was a turnaround situation that ended up going from bad to worse.)

If you want more information on the subject of getting a pay raise (in a new company or in the one you're in now), check out these links:

• 5 Steps to Getting that Raise
• Want a Pay Raise Next Year? Start at It Now

Money Saving Tips: 7 Ways to Combat Crazy Child-Care Costs

Here's a piece from Money Central that gives seven money saving tips on child-care costs. Their suggestions with a bit of explanation/summary from me:

Get financial aid -- See if you employer offers any child-care subsidies or tax-advantaged benefits when it comes to child-care costs.

Barter, swap and share -- Contribute time, services or goods to your child's care center in exchange for reduced rates.

Keep it in the family -- Get mom or another relative to care for the kids.

Flex your schedules -- One parent works days, the other works nights. This also has the built-in benefit that you will never see each other, so you won't have to worry about another child to care for any time soon. (just kidding!) ;-)

Become an entrepreneur -- Then you can take the kids to work. This is especially great if your office is in your home.

Hire a student -- Students do everything cheaper than adults. However, they may have large boyfriends who come over and eat all your food, so you'll need to take the extra food costs into account. ;-)

Someone stays home -- Suck it up and live on one income.

We chose option #7. My wife stayed home with the kids. She loved it and so did they. We were able to do it because we had eliminated debt from our finances a few years earlier -- just another encouragement for those of you working to be debt free -- there's lots of benefits to it.

That said, I can sympathize with parents who have to juggle their lives and/or finances around the issue. It's especially hard on single parents (we have a close friend and a relative who's a single parent) -- both the time and the cost element. My wife helps out quite often (she's such a saint -- taking kids on a moment's notice) when emergencies arise for her single friend (the relative lives far away). I know her friend appreciates it and my wife is glad to help someone out who's in such need.

Comments: Cost of a Pet is $48,000!!!

I wrote the post Cost of a Pet is $48,000!!! a long time ago (several months) and I've since come to the conclusion that $48,000 is probably a teensy weensy bit high as an estimate for the cost of a pet. Instead, all the data I can find seems to point to an average cost of $1,000 to $2,000 per year, with larger animals costing more (dogs more than cats, bigger dogs more than smaller dogs) and smaller animals costing less. In fact, "get a cat" is one money saving tip I've seen people leave in response to my posts on how expensive pets are. (I saw one suggestion to really go cheap and "get a hamster" on another site.) ;-)

All that said, people are still reading my Cost of a Pet is $48,000!!! post and commenting on it. Here's a comment I received just the other day and wanted to share it with all of you:

Great Dane Puppy (7 months old)

$1000 purchase
$500 travel to breeder and shipping
$750 ($150 * 5 months for food )
$300 crates
$300 beds
$200 bones and treats
$200 toys
$350 rug shampooing
$250 5 months pet insurance
$1500 vet ($1000 less thanks to VPI pet insurance)
$400 training
$280 occasional doggie daycare visits
---------
$6030 over the 5 months I've had him, that's $1206 a month.

Good lord! I hope it gets easier as they get older.

On a side note, at a year he starts to be a therapy dog, and my CPA says we can deduct a portion of his expenses.

;-)

For more pet-related posts, see these links:

• More Reasons Pets are Expensive
• Comments: Sell Your House to Save Your Pet's Life
• You Choose -- Pets or College for the Kids
• Pets Clean up for Holidays
• The Cost of a Pet is Now More than $48,000
• 10 Things Your Veterinarian Won't Tell You
• Comments: The Cost of a Pet is $48,000!
• How Much Would You be Willing to Spend to Save Your Pet's Life?
• Comments: How Much Would You be Willing to Spend to Save Your Pet's Life?
• Pet Spending Purring Along
• Comments: How Much Would You be Willing to Spend to Save Your Pet's Life?; Whatever It Takes
• Calculating the True Cost of a Pet
• Comments: How Much Would You be Willing to Spend to Save Your Pet's Life?; A Lot

Sears Customer Service Not as Great as I Thought

For those of you not up to speed on my Sears saga, here's a short background to get you caught up:

I bought an elliptical from Sears, had a problem with it, and they said they would make it right. I was happy about it and posted that Sears Gets Customer Service Right.

Then I had someone comment and say, "Wait a minute, the machine may be at your house, but it's not put together yet. Don't count your chickens before they are hatched." I responded that I'd be posting if they didn't deliver on their promise in a timely manner. (I set that date as last Friday.)

Well, they didn't deliver.

We got the run-around on the phone for over a week. Finally, on Friday night, they called and should be sending someone out on Tuesday to put the machine together. We'll see if he actually shows.

What a shame. Sears took a bad situation (my broken machine) and turned it into a customer service victory. I was happy with Sears! I was recommending them to friends! Now that they haven't followed through in a timely manner, I'd put them at "average" customer service at best.

Stay tuned -- more to come.

Update: Here's how it turned out.

Selling a House: Location's Important but so is Price, Price, Price

Anyone out there buying or selling a home? Here's some advice from Yahoo that stresses what's important when you buy/sell (this perspective is selling, but the principles apply to buying as well) a home. In short, the summary is that location is important in buying a house, but so is price.

I know, it's not revolutionary news. In fact, it's basic. However it's always good to be reminded of the basics every once in awhile, especially in real estate where things have been really wacky lately.

Here are their key thoughts:

Anyone who's been in the real estate business for a while will tell you that the most common reason a property isn't selling or being shown is a too-high asking price.

Sometimes, if such higher-than-market homes do attract suitors, the deals can disintegrate when buyers have trouble securing financing. For example, if present market conditions and comps for the past six months don't support your asking price at the bank, the home will not appraise favorably for a home loan.

Be careful trying to hold out. If your house remains on the market too long, it might actually get harder and harder to attract good offers. After a while, buyers may assume you're getting desperate and will try to lowball you.

I've sold two condos and two houses in my lifetime and three of them were very, very painful. (The other appreciated 25% in four years and sold within a week of being put on the market.) There are so many things to make it miserable: you're dealing with a large chunk of money, you're doing something that you're not familiar with (hence you're uncomfortable), people are tramping through your house all the time (so you have to keep it in showroom condition), you have to decide what to price it at, when to take it up/down, you're trying to move to the new place...the list of horrible events seems endless.

I'm certainly no expert in the details of buying and selling a house (though I do have general principles that I recommend as guidelines), so I won't be able to offer you any advice other than be sure you and your spouse (if you're married) are taking steps YOU feel comfortable with. Don't let an agent, a bank, or anyone else involved in selling your house determine what you will and won't do. Ultimately, you will have to live with the decision much longer than all the others, so be sure your wishes guide the process.

Review: Rule #1 by Phil Town

Last August, I had the chance to see Phil Town speak. I had never heard of him until that day, but I must say I was impressed. He was entertaining, knowledgeable, funny, and made a compelling case for his investment philosophy. I emailed him when I got back and we've "talked" via email a couple times since then. I read his Rule #1 Blog often to see what he's discussing. In short, I like Phil. So I was excited to read and review his new book, Rule #1, The Simple Strategy for Successful Investing in Only 15 Minutes a Week!

Before I get into my review, I want to tell you what the book is about, which is stated concisely in the opening paragraph of the book:

This book is a simple guide to returns of 15% or more in the stock market, with almost no risk. In fact, Rule #1 investing is practically immune to the ups and downs of the stock market.

Color me skeptical at this point.

From there, the book first tears down current investment principles and practices before detailing Phil's principles. Here's a summary of Phil's thoughts on the current state of things from the materials that came with the book:

If your money is in mutual funds—especially the type found in most 401Ks—then you could be setting yourself up to feel the longest and most painful sucker punch ever endured by the investment community. If you’ve been drinking the mutual fund Kool-Aid, then, historically you’ve heard that stocks have outperformed every other type of investment in the past one hundred years. That’s true. But what your financial advisor hasn’t told you is that within that timeframe, the stock market has flatlined for periods of 20 years or longer and the latest data are showing that one of those 20-year, down-for-the-count stretches is imminent. Unless you’re planning to live to be 120, you don’t have time to weather extended and anemic periods of no growth in your investments.

Next, Phil details Rule #1. Simply stated, the rule is "Don't lose money" (taken from Warren Buffett), but Phil says that what it means in practical terms is "to invest with certainty." He goes on and says certainty comes from "buying a wonderful business at an attractive price." He then details The Rule #1 strategy which includes four basic steps:

• Find a wonderful business
• Know what it’s worth – exactly what it’s worth
• Buy it at 50% off
• Repeat until very rich

If you're rolling your eyes at this point, stick with me -- we'll be discussing all of this in just a bit.

So, how do you do this exactly? Phil lays out the "Four Ms" to finding a great business to invest in:

• Meaning – Does the business reflect your values?
• Moat – Does it have a wide moat; can the business protect itself from attacks by competitors?
• Management – Is it well managed and financially strong?
• Margin of Safety – Can you “buy a dollar of value for fifty cents”?

And within "Moat", there are five numbers that need to be evaluated for any potential business including:

• Return on Investment Capital (ROIC)
• Sales Growth Rate
• Earnings Per Share (EPS) Growth Rate
• Equity or Book Value Per Share (Equity or BVPS) Growth Rate
• Free Cash Flow (cash) Growth Rate

The majority of the book is dedicated to detailing the Four Ms, demonstrating how they can and should be used, and giving examples on identifying good investment opportunities. (BTW, Phil also does this on his blog, so if you want to see his principles in action, check it out.)

My thoughts on this are mixed. On one hand, I like the simplicity of index funds. They have low fees (which helps out the return), take little time to manage and are easy investments to use and track. Besides, they come highly recommended by people who manage billions and investment pros. I've had good experience with them in the past as there returns are solid.

That said, maybe I've just been drinking the mutual fund Kool-Aid. Phil's theories intrigue me. There's a part of every investor that thinks he/she can beat the market and with the right system can get 15% returns consistently. And many of the measures he uses make sense: buying at a discount, looking at key numbers, making sure there's limited competition, etc. So he does have a point and can back it up with solid principles.

But in the end, I just don't buy it. In particular, here are the parts of his claims I just can't believe:

• 15% annual returns with no risk -- If this is actually the case, why is Phil telling everyone about it? He could make way more money simply being quiet and investing himself rather than writing a book, couldn't he?
• Immunity from the ups and downs in the market -- I guess if you buy something that can't go down any farther, the market can't even hurt it -- but I don't think this is what he's saying to do.
• 15 minutes a week -- If you do everything he said and only spend 15 minutes a week doing it, it will take you about four years to pick your first stock.

As I said, I like Phil as a person, but I simply can't recommend this book. It's good enough for you to check out at the library and see if you might want to buy it though (especially if you like new thoughts in investing). For now, the Free Money Finance Rating Rule #1, The Simple Strategy for Successful Investing in Only 15 Minutes a Week! on my 0 thru 10 rating system: 4 Stars.

BTW, I've offered to interview Phil to let him convince me that his system really works. I'll let you know what he says.

Free Money Finance books that earn 8 stars or more (not all money related):

• The Millionaire Next Door
• How to Win Friends and Influence People
• Your Best Life Now
• The Purpose Driven Life
• Think and Grow Rich
• The Power of Positive Thinking
• Richest Man in Babylon
• The Automatic Millionaire
• Mind Over Money

Comments: More Ways to Save Money on Kids

I posted a couple times last week on kid-related money saving ideas. My first post was Seven Ways to Raise Kids Who Can Hold onto Money where Philip commented:

I motivate my daughter to save by matching her savings once she reaches a set amount. Right now she is 9, and every time she saves $100 I match her another $100 if she will put the $200 in the bank. She gets $5 a week in allowance, so it takes some sacrifice on her part. She buys a lot less "stuff" now because she realizes it cuts into her goals.

I have also opened up an Emigrant Direct account for her so she can see the interest every month.

The only thing not on the list that I would add is to teach kids about giving. My daughter gives 10% to church every week. I have to remind her sometimes, but often she does it on her own - warms a dad's heart!

This spurred a comment on my second post, Saving Money on Kids, where Dus10 added:

I really like the idea of matching savings... really make it like a true vesting program, as well.

We go to the zoo a lot in the summer time. For a family of five, it is about 70% of an annual pass for just one visit. So, we get the pass in the middle of the summer, and use it as much as we can that summer and the warm portion of the fall. Then, when spring rolls around, we use it as much as we can again. We are thinking of skipping a year, as we will be able to use the pass in two summers, as we purchase it half way through. This would cut the cost in half, again.

I like the matching savings idea as well. We certainly encourage saving and giving, but this takes it to a whole new level. I like it!

We also use the idea Dustin suggests, but for us, it's a "gardens" instead of a zoo.

We go there 6-8 times per year as a family (they have all sorts of seasonal events, activities and shows) and then another 3-4 with just my wife and kids and their friends. We love the place! If we paid each time to get in, we'd probably spend twice as much as our annual membership costs.

Finally, Duane commented on another idea I had suggested -- to save money by playing board games instead of going out. His thoughts:

I recently played the board game "Life" with some friends and their 5 year-old son and was pleasantly surprised at how many money lessons are taught in the game. I've never played Kioyosaki's "Cash Flow" but I've heard good things about it as well, but I believe that games can be useful to model real-world lessons.

We talked about getting Life the other day. I'm going to have to really check it out now. I love games where the kids can both have fun and learn something to boot!

The Carnival of Personal Finance

For all of you personal finance blog lovers, stop by and check out this week's Carnival of Personal Finance at the MoneyBlogNetwork. Lots of great posts there -- you'll be glad you visited.

Money Saving Tip: Stop Smoking

Here's a no-brainer money saving tip:

Stop smoking.

I've posted on this a ton in the past including the following:

• Stop Smoking -- It's Killing Your Finances
• Comments: Stop Smoking
• Stop Smoking, It's Killing the Nation's Finances
• Don't Just Quit Smoking, Take the Next Step

However, there's a bit of new information I want to add to the mix. In the past, I've calculated the cost of the cigarettes and hinted at the costs of extra health care as a result of smoking, but I never had a good number for the medical cost portion. Now I do. Here is a stat from the January issue of Money magazine (source is the Centers for Disease Control and Prevention):

The average smoker pays $1,600 more annually, on average, on health-care costs than a non-smoker.

So do your finances (and your body) a favor and quit smoking. You'll save lots of money and be rewarded with something money can't buy.

Be Faithful with a Little if You Want More

Those of you who have kids will relate to this post.

Isn't it great to see your children learn new things? I know I enjoy it. But have you ever thought about how you teach them? You start with the lowest level of responsibility and once they prove they can handle that, you increase the level of the task. The cycle then repeats itself until they become more and more able and accomplished.

The Bible talks about our relationship with money in the same way. Again and again, it emphasizes the fact that if we are faithful, wise stewards with the  money we possess today (a "little" amount compared to what we can hope for), God will entrust more to us in the future. There are several Bible passages that talk about this dynamic, and I want to share three today.

First, in Luke 16:10, the Bible says:

"Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much."

In other words, however you manage your money when you have just a bit is the same way you'll manage it when you have a lot. The verses that follow this one go on to ask how you can expect to receive more if you're not faithful with what you have now.

The next verse comes from the well-known Parable of the Talents found in Matthew 25 where the master rewards a servant for managing his assigned amount wisely. In Matthew 25:23 it reads:

"His master replied, `Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!'

Once again a person has done well with managing a little, so he's rewarded with more.

The final example comes from the Parable of the Minas in Luke 19 where another master responds like the one in Matthew 25. In Luke 19:17 it reads:

"`Well done, my good servant!' his master replied. `Because you have been trustworthy in a very small matter, take charge of ten cities.'

Over and over again we get the same message -- be faithful with the finances you have today and your heavenly Father will reward you with more.

Why? We'll cover that soon. For now, I'd ask you to meditate on and study these verses this week and ask the Lord to reveal their meaning to you. Next week, I'll add a more to this topic by giving you my thoughts on what it means to be faithful (with any amount of money) and why (for what purpose) you'd get more.

Money, Happiness And The Pursuit Of Both

On Monday I noted that money doesn't make people happy but that I felt wealthier people were happier. Here's a piece from Forbes that explores the relationship between money and happiness and ends with the following conclusion:

Money doesn't really make us very happy. Not only do we want what we don't have, we really don't know what we want, and we think the things that we want will make us happy, which they tend not to do.

I guess that clears things up, right?

Seriously, I think they are right. Money doesn't make us happy. It doesn't hurt though, and can remove a lot of the frustrations in life that do make us unhappy.

Here's another thought:

Which is somewhat along the lines of what another wonk suggests, that the country is in the grips of "luxury fever." That is, families with annual incomes of $50,000 try to emulate the consumption of those with $70,000, who in turn try to emulate those with $140,000, ad infinitum.

Simply put, when we see something we like that someone else has, we want it, too.

This is similar to the dynamic we discussed in my post titled Which do You Prefer: Making More Money or Making Less but Being Paid More than Others? You may be happy with what you have, but when you see someone else with more, you want it too (and can become unhappy as a result).

In the end, they wrap up with the same question they started out by answering...and come to the same conclusion:

And yet, does all of this spending make us happy?

Researchers from the University of Illinois and the University of Pennsylvania proclaim with totemic authority that, in a 1985 survey, respondents from the Forbes list of the 400 richest Americans and the Maasai of East Africa were almost equally satisfied and ranked relatively high in well-being. The Maasai are a traditional herding people who have no electricity or running water and live in huts made of dung.

Money certainly brings on its own sets of issues -- especially serious money like that managed by the Forbes 400.

What do you think? How is money related to happiness?

Posts of the Week -- February 20

Here is a list of my favorite posts this week:

• Which do You Prefer: Making More Money or Making Less but Being Paid More than Others?
• Review: The Automatic Millionaire Homeowner by David Bach
• 10 Attitudes of Successful Workers
• Most Lucrative College Degrees
• Comments: You Choose -- Pets or College for the Kids; Spending is a Series of Trade-offs

And don't forget to enter the Free Money Finance free Giveaway of the Week.

Have a great weekend!

Free Money Finance recommends Emigrant Direct.

The 15 Minute Investment Portfolio

I've written before that two of the reasons I invest in index funds are because they take little time and not much effort. (Besides, they come highly recommended by people who manage billions and investment pros.) Well, it appears that I'm not alone in feeling this way as Money magazine concludes that index fund investments are simple, inexpensive, and offer solid returns. Their thoughts on an index fund-based investing plan:

I like the simplicity of the approach (which makes it more likely you'll stick with it), as well as the focus on index funds (which keeps your costs down and returns up). And I think this strategy is certainly a better idea than devoting all your money to any one of those choices-or putting it in any single investment, for that matter.

So what do I recommend instead? Simple. Just divide your money among three funds: a total stock market index fund, a total international stock-market index fund and a total bond market index fund.

I'm in the process of simplifying my investments as part of the investment review I'm conducting this year (I'm almost done -- should be completed by the beginning of March or so). As you can see from that post, I'm trying to get down to a lot fewer funds, but it's going to take me some time to get to just three -- I'm hoping to get "down" to "only" 45 by the end of the year. ;-)

Money Saving Tip: Save Up to 50% on Your Heating Bill with Three Simple Tasks

With the prices of energy this winter season, I've read lots of articles on how to save money on your heating bills. But until I saw the January/February issue of This Old House magazine, I'd never seen savings percentages along with the tips. Well, this article has them (and quotes the Edison Electric Institute as the source) and using only three of the tips can cut your heating bill in half.

Here are their suggestions:

• Seal around joints in metal ductwork -- saves up to 20%.
• Lower your water heater temp to 120 degrees -- saves up to 15%.
• Replace your forced-air furnace's filter -- saves up to 15%.

Ok, so they hedge a bit by saying you can save "up to" a certain percentage, but they are still good tips.

For me, I need to seal our ductwork -- I know we have leaks in it.

As far as the water heater goes, I need to check ours (I don't even know what it's set at).

I do replace the furnace filters religiously -- mostly because it cuts down on dust floating around the house.

Tax Cuts Make Money, But We're Spending It All and More!

I'm not turning this into a political blog -- and especially not a philosophical political blog -- but when I see a piece titled "tax cuts make money," I have to post on it.

This article is written by Senator Bill Frist, R-Tennessee, the Senate majority leader and makes the following points:

Many people in Washington have long known a dirty little secret about tax-cut measures: When done right, they actually result in more money for the government.

Republicans' decision to reduce taxes on capital gains and dividends provides a good case study in effective tax policy. When we enacted these measures in 2003, the Congressional Budget Office estimated that revenues would decline by $27 billion over the next two years. Instead, it turned out that the tax cut stimulated investment and increased revenues by $26 billion — a $53 billion difference.

If we really want to avoid burdening our children and grandchildren with debt — which does represent a major problem — we need to reform entitlement programs. Within the lifetimes of today's college students, the combined budgets of Social Security, Medicare and Medicaid will consume all federal revenues, leaving nothing for defense, education, housing or any other program.

Making sure that our children and grandchildren don't face the burdens of debt requires that we reform these entitlement programs and set them on a sustainable course for the future. A sensible low-tax policy that keeps the economy growing will play a major role in confronting our fiscal challenges.

Whoa. I don't know where to start on this one.

I'll begin by saying that I like Frist. I lived in Tennessee for five years and got to know him a bit and he's just enough "not-Washington" to be likable (plus he's a doctor in the mold of Marcus Welby, so that doesn't hurt). I also find him to be well-spoken and generally reasonable.

Furthermore, I'm not a lover of big government and high taxes. In principle, I'm supportive of smaller government and lower taxes.

I also agree that something needs to be done about Social Security before the whole thing implodes.

And I could even be convinced of the fact that lowering taxes does increase revenue. I understand the theory, though am unsure how it plays out practically. But I'm willing to accept the argument that it could happen.

But what bugs me about this piece is that he neglects the elephant in the room -- rampant government spending. We've seen ever-increasing deficits from the government over the past several years. It's worse than the typical American in debt who can't stop spending because the government has the power to borrow at will.

So while the tax cuts may have resulted in revenue gains, we know for a fact that spending has gone higher and higher. That's debt that we're going to have to pay back someday and, at this rate, that day is coming faster than I'd like.

Comments: 10 Attitudes of Successful Workers

A few days ago I wrote a post titled 10 Attitudes of Successful Workers which talked about, as you can probably guess, the ten attitudes that successful workers have. A reader commented on a couple of the points and I thought they were worth sharing with all of you:

Everyone is a potential key contact.

This is something that is important especially to freelancers. It is not easy all the time to take note of who the people are especially when you meet so many of them but you never know which one of them will be your next client or will refer you to so many others.

I am my own biggest fan.

Well, again, for freelancers - because no one else will be there to give them a pat on the back but themselves. And being one's biggest fan also helps in motivating one's self.

I've found both of these to be true. I've met presidents of companies who've looked like men off the street and everyday guys like me who looked like they owned the world. You really can't judge a book by its cover in these cases.

As far as being your own biggest fan, this doesn't mean that you're boastful or conceited. It does mean, however, that you believe in what you can do and are confident of your abilities. After all, if you aren't sure of what you can do, who else will be?

Why Many Aren't Securing Their Financial Future

You're now entering the financial Twilight Zone.

I'm not sure what it is with Robert Kiyosaki. His Rich Dad, Poor Dad book was such a good one (in my opinion), but since then, he's become increasingly radical in his financial opinions. I'm not sure if it's because he just wants to be controversial (and thus get attention/readers) or if he really believes what he's saying. Either way, his pieces can sometimes read like one you'd expect to find in bizarro world.

That said, there is often some good stuff in everything he writes. In this piece, he gives three reasons why people don't invest for their retirement. They are:

1. They have an entitlement mentality.

2. They lack vision.

3. Our school system doesn't teach us much about money.

I can certainly agree that these are three reasons why people don't save for retirement. They think the government will take care of them, they are not proactive, and they aren't educated. Seems right to me.

However, I would list the biggest impediments to saving for retirement as:

1. Too much consumption (spending, debt) today and thus not enough "left over" for retirement.

2. Thinking that retirement is very far away. People think they can wait until they are 55 or 60 and start saving for retirement. By then, it's too late -- they've lost the power of compounding/time and there's no way they can make it up.

That's my 2 cents. What do you think?

The Best Personal Finance Magazine: March 2006

In December, I declared Money Magazine as the best of the big three personal finance magazines (Money, Kiplinger's Personal Finance, and Smart Money). I promised to start the competition at ground zero in 2006 since Money was so far ahead that the others could never catch up.

Here's an update on my competition for the best personal finance magazine. My methodology: the magazines get one vote for each article that I found useful -- either for me, someone I knew or for this blog.

As a reminder, here are the scores through February:

Money - 21
Kiplinger's - 12
Smart Money - 9

Here are the results for March:

Money - 4
Kiplinger's - 3
Smart Money - 3

So, our total for the year stands at:

Money - 25
Kiplinger's - 15
Smart Money - 12

My thoughts:

1. My winner for 2005, Money magazine, stumbled a lot this month. This makes two months in a row that the mazagine has performed worse than last year. We'll need to see if this trend continues.

2. Kiplinger's is back to its "average". Expected.

3. Smart Money continues with too many "hot stock of the month" articles.

Personal Finance Bloggers Covered in Business Week

Congrats to all the personal finance bloggers covered in Business Week's recent article on money bloggers (It's premium content now -- accessible only if you're a BW subscriber -- but I'm assuming they'll free it up sometime and/or run it in the magazine as it's dated March 6, 2006). The piece focuses on Jonathan at MyMoneyBlog and also highlights the following blogs:

• Make Love Not Debt
• NYC Money
• My Open Wallet
• Boston Gal's Open Wallet
• 2million
• Networth IQ

There's also a graphic that includes other blogs:

• Pfblog
• MoneyBlogNetwork
• My Open Wallet
• Savvy Saver

Congrats to all!!!!!!

Seven Hot 401k Trends

Here's a piece from Money Central that suggests the seven hot 401k trends:

Making retirement saving automatic. A growing number of companies have decided to harness workers' inertia by making 401(k) enrollment automatic: Employees have to opt out if they don't want to participate.

Simplifying your investment choices. 65% of the companies Hewitt surveyed now offer some kinds of "life cycle" funds, which tailor investments to a person's age, or "target maturity" funds, which make investments geared to a worker's planned retirement date. In general, these funds automatically rebalance investments and gradually reduce exposure to stocks as the employee approaches retirement.

Red-flagging company stock. The temptation to overdose on your own company's stock can be strong. Familiarity breeds comfort. Many 401(k) investors think (wrongly) that their own companies’ shares are safer than a diversified mutual fund.

Containing the fees. About half the employers Hewitt surveyed said they were looking into ways to reduce plan costs.

Stemming cash-outs. As I mentioned in "The 7 most common 401(k) blunders," the second-worst thing you can do with a 401(k) -- after not contributing -- is cashing out when you leave a company. Yet that's exactly what 45% of workers do.

Getting some advice. Companies used to balk at the idea of telling their employees how to invest, fearful (as always) that they'd get sued. Labor Department guidance and the spread of inexpensive Internet options is gradually making companies more comfortable with the idea, however.

Implementing the Roth 401k. Employers aren't exactly falling over themselves to offer the new Roth 401(k)s, but that could change as workers begin to understand their value.

My thoughts:

1. David Bach would love idea #1. I like it too. Sometimes you need to protect people from themselves, and if they're not smart enough to sign up for a 401k, then I'm fine with them being automatically signed up.

If you are unconvinced, here are some posts on how great the 401k is:

• Save Now, Retire Rich
• How Much Goes in the 401k?
• Need cash? Don't rob your 401k

2. As you know, I invest in index funds. It doesn't get much simpler than that. Plus, index funds keep your fees low (point #4) and take little time to manage (and are easy) . Besides, they come highly recommended by people who manage billions and investment pros.

3. You have to diversify your portfolio and loading up on company stock is as bad as loading up on any other stock.

4. Fees can kill your return as fast as anything. Guard against them and your results will be that much stronger.

5. This point absolutely floors me. 45% of workers cash out of their 401ks? This is madness! It's totally unbelievable. Why is this -- are people just over-spending and need the money or do they simply don't understand the impact of decisions like this?

6. If you need financial advice, be sure you hire someone who knows more than you do and not someone who's a salesperson or a loser.

7. I think the jury is still out on the Roth 401k as it appears that businesses are taking a wait-and-see attitude.

Star Money Articles for the Week of February 20

My favorite posts this week from the MoneyBlogNetwork members and beyond:

• AllThingsFinancial started his series on college funding math.
• Five Cent Nickel details Dave Ramsey’s Baby Steps.
• Blueprint for Financial Prosperity questions What Do Debt Consolidation Services Offer?
• Consumerism Commentary asks Tax Bill or Tax Refund, Which is Better?
• Chief Family Officer offers a great story.
• Young and Broke wonders if pets are worth the money.

And I want to say a happy blog birthday to Clutter2Cash and Consumerism Commentary.

Finally, a reminder: If you like FREE STUFF, check out the FMF giveaway this week.

Retire in Style South of the Border

I've written about how great it is to live in Nicaragua, Panama City, Cancun and Mexico in general. In each of these places, your money goes a lot farther than in the U.S. (if you don't believe me, check out the posts).

Well, here's another article -- one that talks again about the advantages of retiring in Mexico. The key points:

Last year, the Dallas Morning News reported that more than 1 million Americans now live in Mexico, at least part time, five times the number of 10 years ago. The U.S. State Department reported in October 2004 that 385,000 live there year round. That number is almost certainly higher today.

And, even though property prices in Mexico have increased, the costs of homes are still low. In addition, according to Greenberg, there are low property taxes averaging about $300 a year on property of $300,000 and low monthly costs.

What's more, creature comforts of American life are increasingly becoming available south of the border. Satellite and cable television bring news and entertainment right into ex-pat's living rooms, the Internet keeps them in touch with hometown newspapers, and American food brands are available at the supermarket.

Further south, another new development, Paraiso del Mar, sits right on the edge of the Cabo/La Paz corridor. It's on a spit, a ferry ride from La Paz. There'll be golf, tennis, water sports pools, and a marina. A 1,700 square foot, three bedroom condo, five minutes from the water costs $239,000 with big sea-side homes going for $1.1 million. Similar homes in California would cost three or four times as much.

I don't know about you, but I see this as a big trend in the future -- retirees moving to another country. Let's think of how/why this might occur:

• People aren't saving enough for retirement.
• Yet, they don't want to give up a "fun" retirement lifestyle.
• Their choices are to work longer or cut expenses dramatically.
• For those who don't want to work (or can't), moving to Central or South America provides the latter.

And by the way, the weather is WARM! What's not to love?

Of course, you can always retire in a different way and remain in the U.S. But if you want to do that, it's likely that you'll need to save more. You should check out these posts -- they should help you do just that:

• Financially Set or Seriously Rich?
• Key to Retirement: Sticking to It
• The Real Retirement Secret (How to Maximize Your Retirement Savings)
• Getting Rich is Simpler than You Think

Money Saving Tip: Tell Friends when You're Thinking of Buying Something

A few days ago when I posted about my great experience with Sears, I listed a money saving tip that may have gotten lost in the midst of the long story. So I wanted to highlight and explain it a bit to make sure it was recognized. The tip:

Tell friends, family, and people you know/see when you're thinking of buying something.

We've had several instance where we've been shopping for something, told someone about it and been given/sold at a cheap price just what we were looking for. Examples:

• Last summer my wife was looking for a new cooking set. She was telling our next door neighbor about it and the neighbor offered to give us her two-year-old, expensive set as she was "trading up." We thought that was mighty neighborly of her, and we accepted. ;-)
• As highlighted in the Sears story, we told a friend that we were going to buy an elliptical machine and she gave us hers since she never used it.
• We received a car carrier from my employer when we were thinking of buying one.

Conversely, we've given away things when we've found out that there's a need. We've given a very nice crib to a young mother, a car to a relative, and a leather coat to a buddy of mine.

Of course these items aren't new, but they are FREE. And as long as they fit the purpose, they will do and will save you lots of cash at the same time.

Money Saving Tip: Lose Weight

Here's an unusual money saving tip:

Lose weight.

How will this save you money? Well, if you're overweight, you pay more, on average, in medical expenses. Here's the data from Money magazine's January issue:

An obese person pays $900 in additional annual medical costs versus a person of normal weight.

So I guess this tip has a double benefit: you save on food costs (won't have to buy as much) as well as on medical expenses. :-)

A couple years ago, I lost 25 pounds on the Atkins diet. I've since ramped up my exercise routine to include cycling, and I feel like I'm in the best shape of my life. Plus, I'm saving $900 a year!!!!!!

Comments: Sears Gets Customer Service Right; Not So Fast

The other day I posted that I'd had a good customer service experience with Sears and received the following comment from a reader:

I had to comment on this one as I have had bad luck with Sears service in the past, and it seems like you had a somewhat similar experience, and are calling it good service. I couldn't find out the exact timeline of your story, but it seems like you purchased this machine about two or three weeks ago, and you still don't have an assembled working machine in your house yet. You've had to spend a lot of time going back and forth with Sears to get the problem resolved, and it is STILL not resolved. Why wouldn't they send the guy to assemble it with the delivery?

Our similar experience was with a dryer. When it was delivered, we were told that there was a small dent in the back of the dryer that was cosmetic and wouldn't be a problem with the function of the dryer. We accepted it slightly discounted for the "cosmetic" damage. A few weeks later, the dryer was not working. We called out for service, and they told us that the drum was damaged (from that "cosmetic" dent). We got the runaround from Sears for three or four weeks before we got someone that told us that we needed to bring in our receipt to Sears and schedule them to deliver a new one. So we did that the next day and it was another week or so before we could get it delivered. Long story short (too late) we were out a dryer for 1-2 months with a NEW dryer from Sears.

I don't mean to ramble on, but I would warn you not to count your chickens before you're actually USING your new elliptical machine..... GOOD LUCK with your Sears "service".

I thought this was a good comment and responded accordingly:

For me, I just like the fact that Sears backed up their product. It's what a retailer is supposed to do which is in stark contrast to an experience I had with Target during the same time frame. (I'll be posting on that next week, I hope).

I do not yet have the elliptical assembled (I could have done it myself this weekend, but I was busy) and rest assured, I'm tracking the situation. I'm giving them this week to get it set up to maintain my satisfaction. Otherwise, you'll be seeing a post titled "Sears Blows it". ;-)

Well, it's not looking good for Sears. The week's almost over and we don't have our elliptical set up yet. Stay tuned.

See this link for how it turned out.

Money Saving Tip: Watch Medical Bills

Here's a tip that can save you money on your medical bills:

Review every medical bill you get and make sure it is accurate.

Why? Because there are a lot of mistakes on medical bills (30% are coded wrong according to Money magazine). In particular, pay attention for double billing. here's what Money magazine says about it in its March issue:

Watch out for double billing. It's common when you've been admitted through the E.R. or you've seen a bunch of doctors.

Health care is expensive enough without paying extra because of billing mistakes. Be sure to review yours closely.

Saving Money on Kids

Here's a list of money saving tips on kid-related expenses from the Motley Fool. I'll break the list into two groups -- new ideas and ideas I've previously covered in this blog. First, here are some new ones to add to the list:

• Have some regular reading time, when all of you read some books or magazines or newspapers. It's good for the kids and good for you. And it doesn't cost much, either.
• Make your own baby food. In a food processor or blender, puree canned fruits and vegetables (preferably separately) with a little water or juice from the can. (Make sure you're not using products with a lot of unwanted sugar or salt, though.)
• Teach your children about the value of money by giving them allowances and expecting them to save and pay for some of the things they want. If you can get them to save and invest some of their money, you might even institute a matching program, in which you'll chip in a dollar for every one or two dollars they save.

Now, here are the other ideas they offer up that I've covered previously:

• One fun thing to do is to establish a family game night.
• Buy a family pass to the local zoo or amusement park, if you plan to go there frequently.
• Spend time at public parks. (and other community events)
• At restaurants, you might offer to pay your child 50 cents or a dollar if he or she orders water instead of soda.
• Learn to cut your kids' hair.

Seven Ways to Raise Kids Who Can Hold onto Money

Here are seven ways to raise kids who can hold onto money from Money Central :

• Teach even the youngest children the difference between needs and wants.
• Let your children make money decisions from an early age. 
• Give your child an attractive alternative to spending...and motivation to save!
• Make sure your child understands the connection between work, paychecks and taxes.
• Never give up on trying to teach kids about the cost of credit.
• When the age is right, encourage your child to get some work experience.
• Teach your child about investments.

These are good tips in my opinion -- especially points one and five.

It's funny how different kids react to money differently (thus creating a need to emphasize different aspects of money as you're teaching them). Our son would cut off his right hand for $5 while our daughter is not motivated in the least by money -- in fact, she gives a lot of it away.

An illustration about her: I have been trying to get my daughter to wear her hair with bangs because I think it looks better, but she has insisted on pulling her hair back (since many of the older girls wear it that way). So I tried to bribe her with cash. No deal. Then my wife said, "She's not motivated by money, she wants your TIME." So I offered to take her out to lunch at her favorite place, just the two of us, if she wore bangs. Done deal! The rest was simple negotiation, and since this is my business and she didn't know any better, I took advantage of her -- and got her to commit to wearing the bangs for a YEAR. Then, when she wanted to change the agreement to allow her to wear her hair pulled back on her birthday, I got another MONTH of bang-wear out of her. Oh the joys of "teaching" kids about money. ;-)

Courting the Cash-Strapped

Here's an article from Market Watch on the dangers of payday loans and how companies offering them are targeting people who already have loads of debt. Here are some facts on what's going on:

"They are targeting the financially strapped middle class -- those with incomes who are asset poor and debt rich," warns Howard Karger, author of "Shortchanged: Life and Debt in the Fringe Economy" (Berrett-Koehler). "There is a trend to opening stores in suburban malls."

Some payday lenders, whose offices generally are open during nonworking hours when banks close, may sell franchises. Other high-cost services peddled under the same roof may include: Pawn, check cashing, rent-to-own, bill paying, money transfers, tax refund anticipation loans, car title loans, cell phone sales and money orders. Many are publicly traded companies. Services are advertised aggressively on the Internet and on television.

In particular, I found the following information very disturbing:

Say someone takes a payday loan from Advance America. The charge on this kind of loan, secured by a paycheck, averages $15 per $100 for a two-week period or what amounts to a 391% annual percentage rate (APR). A PricewaterhouseCoopers survey has reported that the average payday loan customer takes out 7.3 payday advances per year. At least one published report pegs the average payday loan at $500.

Interest-rate regulation on these loans is sketchy and often unenforceable. Many state laws limit fees and set maximum loan amounts. Iowa, for example, sets a $500 payday loan cap, Karger says. Plus fees can't exceed $15 for the first $100 borrowed and more than $10 for each additional $100 up to the $500 cap. But that can still add up to a 435% APR in some cases.

The only thing I can say is STAY AWAY FROM THESE SORTS OF LOANS. They are designed to suck you dry (rather quickly, I might add). If things are that bad for you financially, you need to make some radical changes to the way you handle your finances -- and you need to do it quickly.

For information on how to get out of debt, see these posts:

• Strategies for Dealing with Credit Card Debt
• Get Out of Debt
• Yes, You Can Erase 15 Years of Debt in 14 Months
• Nine Ways to Pay Off Debt

I'm Cruisin' -- Come Join Me While You Can Get the Best Deal

Last month I posted that I'm going to be part of the first annual Blogonomics Blog Cruise taking place on this ship this October 5th thru 9th. I also highlighted the itinerary and the cruise's blog. However, I forgot to encourage you to sign up now. Why is it important to sign up now and not wait? Because people who commit early save $300 (if you sign up by March 15).

So what are you waiting for? Take that income tax refund and make an investment in your blogging career -- and have some fun while you're at it. You can get all the details you need at the main Blogonomics site.

Hope to see you in October!

FYI -- Jeremy also has some good thoughts on the cruise -- namely, it's half the cost you'd normally pay for a cruise and a conference combined.

Milder Weather Translates into Milder Heating Bills

Here's a piece from USA Today that says this winter's heating costs are going to be below the outrageous original estimates:

Warmer-than-normal weather has greatly reduced the sticker shock for this year's winter heating bills, the government said Tuesday.

Homeowners on average will pay 17% more to heat their homes this year than last season, the Energy Department estimated. Although that would still be the biggest increase in three years, the new heating bill estimate was down significantly from a 25% jump predicted in January and just over half the gain forecast at the start of the six-month heating season in October.

Wow, I never thought I'd be happy with "only" a 17% increase. I guess that's what our world has come to concerning energy costs.

Unfortunately, the 17% is just an average. My home is heated with gas (and I live in Michigan -- which I believe is Eskimo for "coldest place on the earth") which means I don't get by with a measly 17% increase:

Users of natural gas, which heats 57% of U.S. homes, will still see the biggest jump in their bills this season. Natural gas users are expected to pay an average of $920 this winter, up 24% from last season. But that's down from a 35% jump projected in January and a 48% gain estimated in October.

Isn't that the story of my life. ;-)

As I posted previously, my heating costs for December 2005 and January 2006 were $643.73 for 460 CCFs. Last year, I paid $447.73 for 497 CCFs. In other words, I paid 44% more for 8% less fuel. Yikes!

If you'd like more tips to save on your heating costs, see these links:

• Energy Savings Tips from Energy Star
• Save Hundreds on Your Heating Bill

Money Saving Tip: Use Blinds to Save on Heating Costs, Part 2

Here's another simple but effective money saving tip for those of you who are trying to do everything you can this winter to hold down heating costs:

Allow sunlight to warm your home. Keep blinds and drapes open during the day and closed at night. Make certain south-facing windows are clean and screens removed. These steps can increase solar warmth by forty percent.

We live in Michigan, the land of perpetual winter, so we really use this tip a lot. On sunny days in the winter here (which aren't many unfortunately), we open up the blinds and the house gets really, really warm. In many cases, it stays very warm until late into the evening.

BTW, we close the blinds as soon as the sun goes down to lock in the heat.

Free Money Finance in Eight Carnivals This Week; Hosting Carnival of Personal Finance Next Week for the MoneyBlogNetwork

Free Money Finance is part of eight carnivals this week. Here are the carnivals and my posts that were included in each:

• The Carnival of Investing - Key to Retirement: Sticking to It
• Best of Me Symphony - Best Financial Tips from FMF Readers, Part 1: Never Pay Retail
• Carnival of the Capitalists - Investing Versus Your Career
• Carnival of Debt Reduction - How Much College Debt is too Much?
• Bonfire of the Vanities - Money Saving Tip: Stop Drinking Bottled Water
• I hosted the Carnival of Personal Finance
• Festival of Frugality - Raising Your Quarter-Million Dollar Baby
• Carnival of the Vanities - Good Money Skills More Important than Sex

Stop by these carnivals to read some great posts!

In addition, I will be assembling next week's Carnival of Personal Finance that will be hosted by the MoneyBlogNetwork. If you'd like to be included, you can submit a post by using the handy submission form at the Conservative Cat or Blog Carnival.

Deadline for submission is Sunday, February 26 at 5:00 pm ET

Looking forward to some "great" submissions!

Free Money Finance Giveaway of the Week: Ordinary People, Extraordinary Wealth by Ric Edelman

Today we give away the Jean Chatzky book I mentioned last week and announce the next giveaway for this week. Let's get started.

The winner of the Jean Chatzky book is: Lori. Congratulations!

This week, I'm giving away a copy of Ordinary People, Extraordinary Wealth by Ric Edelman. Here's how you can enter to win this book:

Leave a comment, any comment, on this post. That's all you have to do.

I'll draw a name at random next Wednesday as well as announce the next giveaway. As for rules, they simply are:

1. You can enter once per day (total of seven entries per week) by coming back to this post and leaving a comment. You can not simply leave seven entries on one day -- if you do, all your entries will be disqualified.

2. The drawing will be final and I will be the complete and final judge (don't worry, I'll be fair).

3. U.S. mailing addresses only.

Good luck!

Pet Money Saving Tips

Here are five tips for saving money on pets from Money:

1. Vet your vet. Get recommendations on service and cost before choosing a vet.

2. Get medicine elsewhere (besides from the vet).

3. Be preventative.

4. Beware pet insurance.

5. Skip the gourmet aisle. After surgical procedures, food was the second most expensive item for pet owners. Individually, Americans spent about $250 a year on food for their pets. That's an almost $15 billion industry.

Based on the sources I've seen, my best guess on the average cost of a pet is somewhere between $1,000 and $2,000 per year, so it pays to save all you can. In addition, I suggest you really consider the financial impact of a pet before you get one. Having a pet is fine (of course!) but many people get one not considering (and planning for) the cost and get a nasty surprise after adding Fido to their family.

For more on pets and money, see these links:

• More Reasons Pets are Expensive
• Comments: Sell Your House to Save Your Pet's Life
• You Choose -- Pets or College for the Kids
• Pets Clean up for Holidays
• The Cost of a Pet is Now More than $48,000
• 10 Things Your Veterinarian Won't Tell You
• Comments: The Cost of a Pet is $48,000!
• How Much Would You be Willing to Spend to Save Your Pet's Life?
• Comments: How Much Would You be Willing to Spend to Save Your Pet's Life?
• Pet Spending Purring Along
• Comments: How Much Would You be Willing to Spend to Save Your Pet's Life?; Whatever It Takes
• Calculating the True Cost of a Pet
• Comments: How Much Would You be Willing to Spend to Save Your Pet's Life?; A Lot

How to Get Your Blog to 100,000 Visitors and Beyond, Step 21; Write Offline Articles

Step 21 to getting to 100,000 visitors and beyond: Write offline articles.

Three to five times a year, I write a financial article for a publication that has 7.2 million weekly readers. At the end of each piece, they refer the readers to Free Money Finance. Now it doesn't drive as much traffic as you'd think, but I do get a good spike every time one of those articles hits. That's why I encourage you, if you have the ability and desire, to write articles for offline publications as a way to drive traffic to your blog.

Now many of you haven't been a part-time freelance writer like I have for eight years, so you may not have the skill or connections to write for a very big publication. That's ok -- do what I did. Start small, keep at it, and slowly write for larger and larger publications. Yes, it will take time, but you'll generate traffic for your blog, plus make some money along the way! ;-)

If you want more information on becoming a freelance writer, there are two resources I recommend:

• Writer's Digest -- The leading magazine for writers. It's full of helpful hints every month. See if your library gets it and read all the back issues you can.
• Writer's Market -- Annual publication that lists a vast number of publications, the stories they are looking for, how much they pay, who the main contact is, etc. The book also has several "how to" articles that will help get you started.

Beileve it or not, there's a publication (or several) for almost every topic. So no matter what your blog covers, it's likely that there's a publication that deals with the same issue. If you have the skill and desire, you can write for publication and drive traffic to your blog.

Click here to read part 22 of this series.

Click here to read part 1 of this series.

Free Money Finance recommends Emigrant Direct and You Need A Budget.

Most Lucrative College Degrees

Here's an article from Money that details the most lucrative college degrees. Their findings:

Topping the list of highest-paid majors were chemical engineers who fetched $55,900 on average, followed by electrical engineering degrees at $52,899. Despite taking a 0.3 percent dip compared to the 2004-2005 academic year, mechanical engineers took third place with an average salary of $50,672.

Accounting and economics or finance experienced the biggest growth, claiming the fifth and sixth spots, and rounding out the list, in order, were civil engineering, management and marketing.

Liberal arts majors, which included both natural and social science majors such as history and English, finished last with a starting salary of $30,828, but experienced an increase of 6.1 percent compared to last year.

As I've said before, a college education is one of the best investments you can make toward growing your net worth (even if it's "only" a liberal arts degree). :-)  Here are some of my posts on the economic advantages of getting a college diploma:

• How Much College Debt is too Much?
• A Great College Money Saving Tip
• 4 Ways to Save Big on College Costs
• College Financial Aid Can Save You Lots
• Tax Savvy Ways to Save for an Education
• The Value of an MBA
• College Majors that Boost Your Paycheck
• The Value of an Education
• Facts on Education (and the Value of It)
• The Value of Education
• Almost Infinite Investment Return
• Comments: Almost Infinite Investment Return; Life-Long Learning

Which do You Prefer: Making More Money or Making Less but Being Paid More than Others?

Here's an interesting article on money and happiness from Forbes. If you're into scientific research/thoughts on the topic, you may want to read the piece.

The part I picked up on though was the comparison between absolute and relative salaries and which people prefer. Here's the question they pose on this subject:

Would you be happier working for Firm A, which will pay you $94,000 per year and pay others who do the same work $100,000, or for Firm B, which will pay you $89,000 and pay others $83,000?

Firm A, right? It earns you $5k more a year -- why wouldn't you like it better?

Well, studies say something different:

Alas, taking the job with the better salary may maximize your wealth, but it will in all likelihood minimize your happiness. Why? Because right now you are comparing one job with the other, and the job with the larger salary is appealing by comparison.

But it won't take long for the nature of that comparison to change. Once you actually take the job at Firm A, you'll almost surely stop comparing your salary with the salary you might have earned at Firm B. And just as surely, you'll start comparing your salary with the salary of the guy in the next cubicle.

As economist Andrew Oswald notes, "Happiness levels depend inversely on the earning levels of a person's neighbors. Prosperity next door makes you dissatisfied. It's relative income that matters: When everyone in a society gets wealthier, average well-being stays the same."

This is a very interesting finding. Some of my thoughts on the topic:

1. This is probably one reason companies try to keep salaries secret. They don't want Jim knowing that he's doing the same job (and maybe doing it better) than Bill, but getting paid less.

2. I'm always interested in what other people I know (friends, co-workers, past college classmates, etc.) are making and how my salary compares. I earn a decent salary and am happy with it, but when a friend I worked with a decade ago called the other day and told me in casual conversation that he was earning more than I was, I felt bad about it. Why was that?

The piece ends up with the reason why:

Unlike vacations, groceries and real estate, happiness is bought with relative dollars.

So, what do you think about this? I'd love to hear your thoughts and experiences on the issue.

Money Saving Tip: Use Blinds to Save on Heating Costs

Here's a simple but effective money saving tip for those of you who are trying to do everything you can this winter to hold down heating costs:

Use Venetian blinds to help keep energy costs down. In the winter they should be slanted, top to bottom, from indoors to outdoors to keep cool air behind the blinds.

We always keep ours slanted bottom to top -- so I guess we need to change that.

How Your IQ Impacts Your Wealth and Health

Here's some good news for all you smarties out there: smart people actually live longer! Here's the summary from this MSN article:

While it's true that no one yet has figured out how to beat the Grim Reaper at his game, smart people appear to be better at holding him off longer.

Now many people may simply think that smart people are richer and because they are richer, they have better medical care, more access to preventative healthcare and drugs, eat better, etc. and that's what helps them live longer. Well, the article addresses that issue and makes the following comment:

People who track health statistics have made the claim that unequal access to health services by rich people and poor people makes all the difference. But if this were the case, then the gap should have decreased in England when the National Health Service was introduced. But this didn't come to pass. Nor have employer insurance, Medicare, and Medicaid decreased that gap in the United States.

Finally, after a LOT of back and forth, they come to their main conclusion:

The same smarts that help people attain high-status, high-pay jobs in the first place are also the tools that help people avoid making poor, life-shortening decisions. It's dumb to smoke, or to become obese, or to neglect to exercise, for example. High-status, wealthy people are less likely to do these things--possibly because they're smart enough to predict the future consequences, or because higher self-esteem gives them a greater incentive to invest in their health.

So while it's true that having a high IQ makes you more likely to have wealth and a higher-social-status job, it's making smart and healthy decisions--and not simply the status and savings--that help a person live longer.

Some interesting thoughts/discussions around these topics the past couple of days. If you're interested in this subject, read the full article -- it's fascinating. And you may want to read my post from yesterday titled Why the Rich Live Longer. It doesn't contain "the answer" to any of these questions, but it does add to the discussion.

In the end, the takeaway is that there's a connection between intelligence, wealth, and longer life. It seems that it's likely that one (or two) of these leads to the others, but we can't be sure. However, I'm trying to play it safe. I plan to grow my net worth and keep my mind sharp -- and hopefully that will lead to a longer, more enjoyable life. ;-)

Comments: You Choose -- Pets or College for the Kids; Spending is a Series of Trade-offs

I had a response to my post on You Choose -- Pets or College for the Kids that I thought did a good job of explaining my outlook on spending/saving money. Here's the whole piece:

You're absolutely right that pets aren't cheap. We have a 10 month old beagle and we don't spend on him beyond the necessities - food, an occasional toy, boarding when we travel, occasional minor grooming, etc. - and even then it's not cheap. So I can't imagine how people justify spending extra on the luxuries for their pets.

That said, I think this is one of those quality of life issues. We're humans. We can't deny ourselves every possible pleasure in pursuit of another thousand dollars to stuff into our IRAs. We can cut out the lattes, the sodas, and every other little thing, but where do you draw the line?

Believe me, I'm as financially responsible a person as you'll meet. But sometimes it's important to spend money on things that make you happy. Our puppy makes me smile and runs up to greet me when I get home from work. That's worth something.

I think the real solution is to find that right balance of spending on the extras. Do enough to make yourself happy and enjoy life, without overdoing it. Get a dog, but just one, and cut back on the lattes. Or get the lattes, but take a couple less dinners out each month.

The part I want to highlight is the last paragraph. Dan does a good job of summarizing my feelings on spending -- it's about choices. You can't deny yourself everything or life will be pretty boring. However, you can't have everything or you'll be in debt. It's a balance, a set of choices that each person needs to make for himself or herself.

I just wanted to highlight this thought because I know I can sometimes come off as advocating "don't spend money on anything." That's not my intent. My intent is to share with you ways to save and point out when items are excessively costly. After that, the choice is up to you.

If you want more information on how to save money, see the saving money section of Free Money Finance for all sorts of tips and ideas.

Going Back to No Moderation

Ok, I hate Typepad's comment moderation system, so I'm taking it off and will be looking at other ways to deal with the spammers.

See this post in case you don't know what I'm talking about.