Free Money Finance

Four Habits of Successful Investors

Want to know the four habits of successful investors? Then click the link to check out my post from one year ago today.

My Rose Tally This Summer (and How Much Money I Saved)

This past summer I wrote Save Money on Roses (and Flowers of All Sorts for that Matter) detailing how I got started growing roses and how it saves me a bunch of money. I thought I'd give you a final update on just how well I did this growing season.

Before I get to that, let me say that yes, I am enough of a geek to count the number of flowers produced by each bush. I record these on a spreadsheet and compare them to what the bush produced in previous years. I know, I'm strange. It's just the competitor in me -- I want to beat last year's growth!

That said, here's my final tally:

I have 13 rose bushes in the front of my house (southern sun exposure -- great for growing) and this summer averaged 173 flowers per bush. Yep, over 14 dozen flowers PER BUSH. That's 187 dozen flowers that my bushes produced.

Now I have to admit, not all of these are high-quality, give-them-as-gifts flowers, but many were. I gave them to my wife (of course), neighbors, friends, co-workers and the like -- just to be able to make a person's day a bit better (everyone likes to receive flowers, don't they?)

So what would these have cost me, say, if I'd purchased all of them of $20 per dozen? That would be $3,740. Half of them at $20 per dozen? $1,870. Even just a quarter of them at $10 per dozen is still $468. Throw in all the fun, exercise, and sense of accomplishment, not to mention the value they add to our house (they make it look great), and growing roses (or any sort of flowers/vegetables) is a money-related tip I highly recommend.

Of course, we're now in winter and I put the roses to bed for the season. But I'll be back next year -- and shooting for 190 dozen flowers! ;-)

Five 401k Mistakes to Avoid

Here are five 401k mistakes to avoid as listed by Money magazine:

• Mistake 1: Not participating in your 401(k)
• Mistake 2: Not contributing enough
• Mistake 3: Not investing for growth
• Mistake 4: Borrowing from your 401(k)
• Mistake 5: Cashing out your 401(k)

Here are my thoughts on each of these:

1. Why would someone not participate in a 401k? At a minimum, you should contribute enough to get the full company match.

2. Again, contributing enough to get the full company match is retirement step #1. It's a no-brainer.

3. As long as you have a long-term time horizon of 10 years or so (which most 401k savers will have), you should be invested primarily in stocks to maximize the growth of your funds. Personally, I prefer index funds.

4. Borrowing from a 401k is the #1 mistake on the list of the 12 biggest money mistakes.

5. Cashing out your 401k is a very, very bad idea.

For more on making the most of your retirement, see Best of Free Money Finance: Retirement Posts.

Simple Tip to Save on Heating Costs

Here's a simple but effective tip for saving on heating costs. It was left as a comment on my post titled Tips for Saving Money on Heating this Year:

I have personally found using a space heater to be a big savings. When you spend an extended time in one room (sleeping at night) you can lower the temperature for the whole house while keeping warm on a per-room basis. This works best for singles or small families.

Great idea! We do this in our basement where I have a small home office. Since the temperature is relatively stable down there no matter what it's doing outside, we block off all the vents to the basement and use a space heater in the winter to take a bit of the chill off. It works perfectly and we only pay for heating the area when we're actually down there (which is a fraction of each day.)

By the way, the reverse of this tip works in the summer too -- simply install a window air conditioner in the room where you sleep to keep it cool, and let the rest of the house warm up.

Saving Money on Buying a Car

I realize that my post titled 301 Saving Money Posts -- Hundreds of Ideas on How to Save Money was a bit like taking a drink out of a fire hydrant -- it can get pretty over-whelming to look at all those money saving tips at once. As such, I decided to post sub-sections of that list every once in awhile so you can look at all the money saving posts I have on one particular topic (a much more manageable task.) Today I'm listing ways to save money on buying a car. Here goes:

• 10 Common Car-Buying Mistakes

• Comments: Ten Ways to Protect Yourself from Used-Car Sales Tactics; Make Dealers Say No

• Good, Better, Best Money-Saving Ideas: Car Buying

• How to Save $10,000 on Your Next Car

• Save 50% on Buying a Car (Kind Of, But Not Quite)

• Save on Buying a Car: Four Steps to a Bargain on Wheels

• Saving on a Car Purchase, Buy Used

• Ten Ways to Protect Yourself from Used-Car Sales Tactics, Part 1

• Ten Ways to Protect Yourself from Used-Car Sales Tactics, Part 2

• Ten Ways to Protect Yourself from Used-Car Sales Tactics, Part 3

• Top 10 Car-Buying Mistakes

• When to Buy a Car

Review: Phillips Sonicare Toothbrush (And How You Can Save $10 Off One)

A couple weeks ago, I was sent a Phillips Sonicare toothbrush to review. I had answered a series of questions on a survey and they had deemed that I'd be a good person to try out the product. They sent me one despite me telling them I already had one -- so who was I to argue if someone wanted to send me a top-of-the-line high-end toothbrush for free? I happily accepted and moved on. ;-)

Before I get into my review, a bit of background. I grew up as a rough tooth brusher. The harder I scrubbed my teeth, the better (or so I thought.) Turns out that wasn't the right technique and over the years I had brushed so hard that I had receded the gums in a couple spots. As a result, my dentist recommended I buy a Phillips Sonicare toothbrush since it would do all the scrubbing (and do so at a much lighter level that I was doing it.) So my wife and I headed to Costco, bought two toothbrushes, charged them, and started our conversion to brushing with power.

Initially, the new toothbrush took some getting used to. Everything was different -- how it did the work (not me), how long it brushed (two minutes), how it felt in my mouth and in my hand, how I used it (angle, movement, and so on), etc. But I finally got the hang of it and started to enjoy the experience. Suddenly, the two minutes I was brushing seemed to go by much faster.

I've been using the toothbrush for over a year now. I've since had two regular visits to the dentist since then, and they have told me my teeth are nearly perfect (of course, some gums are still receded and the fact that I floss once a day helps too.) I give most of this credit to the Sonicare toothbrush. It's made me brush longer (I believe that the average person brushes for something like 20 seconds), kept me from rubbing my gums out of my mouth, and made brushing "fun" -- at least as fun as it can be. ;-)

I'd give this product two thumbs up and would recommend it to anyone who asked me about it. And for those of you looking for a great gift idea, it would make a wonderful present this holiday season.

And now you can save money on one of them...

If you're interested in buying one of these (really interested, not just "kinda thinking about it") then email me and tell me you'd like one. I have five coupons, each good for $10 off a Phillips Sonicare toothbrush. I'll mail one to each of the first five people who email me.

Free Money Finance Carnivals This Week

Here are the carnivals Free Money Finance is in this week and my posts that were included:

• Carnival of the Capitalists - Six Wise Ways to Spend a Raise

• Carnival of Debt Reduction - The Best Credit Card You Can Use

• Carnival of Personal Finance - Six Wise Ways to Spend a Raise

Stop by these carnivals to read some great posts!

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Also, please visit our friends at Financial Web -- and tell 'em we sent ya!

More about the Power of Compounding

I talk a lot here about the power of compounding. Here's a reader comment on this subject titled Comments: Posts of the Week -- October 10; Compounding. It was posted here one year ago today.

People Will Borrow Whatever the Bank Will Lend Them

Here's a comment left on my post titled Free Money Finance Top 10 Most Hated Posts/Themes: #5 My Formula for Buying a House that I believe accurately reflects the state of home borrowing these days:

Honestly, people will buy for whatever the bank will lend them. When we were mortgage shopping two years ago, we ran some numbers and figured out what we could afford, but lenders were beating down our door trying to give us 150% of the maximum that we could afford. Ultimately we opted not to buy, which is good, because real estate values in this area are beginning to plummet. But seriously, until this practice is stopped, people won't quit buying beyond their means.

Yes, most people borrow as much as the bank will let them borrow. This is unfortunate since you should never let a bank tell you how much to borrow for a home. Why? Because their job is to make as much money off of you as possible -- not to watch out for your financial future/best interests.

For those of you interested in my thoughts on buying a house, check out my formula for buying a house.

More Education Equals More Pay

The Bogleheads' Guide to Investing (I LOVED the book -- see my rating for details) includes a chart that lists expected lifetime earnings per education level. The chart lists various education level and what people at those education levels can expect to earn throughout their lives (according to the U.S. Census Bureau.) The results:

• Some high school, no diploma - $1,000,000
• High school diploma or equivalent - $1,200,000
• Some college, no degree - $1,500,000
• Associate degree - $1,600,000
• Bachelor's degree - $2,100,000
• Master's degree - $2,500,000
• Doctoral degree - $3,400,000
• Professional degree - $4,400,000

Just to be clear, here's how Wikipedia defines professional degrees:

In the United States and Canada, professional degrees refer to academic degrees that are specific to a particular vocation or profession. Law school (JD or LLB), medical school (MD and DO), engineering school (BSc. or BASc. in Engineering, BEng., MEng., and DEng.), dental school (DDS and DMD), veterinary school (DVM), business school (MBA), physical therapy school (DPT), pharmacy school (BSc. in Pharmacy and Pharm.D.), schools of social work (MSW), art school (MFA), seminary (M.Div.), and architecture school (MArch) are examples of institutions where professional degrees can be earned.

I've noted several times that your career is your most valuable financial asset, offering you many financial benefits and that you can make the most of it by getting a college degree and managing your career to its full potential. I've also said that doing this well can earn you millions of dollars in extra income throughout your lifetime. It seems like this chart backs up these thoughts.

Want more information? I've got tons of it on how an education and good career management can significantly increase your income. Here are just a few of my posts on the subject:

• This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly

• Make the Most of a College Education -- It's Well Worth the Investment

• This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly

• College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)

• Which is More Important -- A High Starting Salary or Higher Average Salary Increases?

12 Rules for Re-gifting

As noted earlier this week, I've written positively on re-gifting a couple of times (see Is Re-gifting Okay? and Over Half of Americans Re-Gift, Do You?) and have had a fair amount of success with it (success defined as I got rid of a nice gift I didn't want and the recipient got a nice gift they did want.) So when I saw this piece from Money Central detailing their 12 rules for re-gifting, I knew I had to share/comment on it.

Let's start with their suggestions:

• Don't mention it, please.
• Do update the wrapping.
• Don't give hand-me-downs as regifts.
• Do keep track of who gave it to you first.
• Don't EVER regift these items.
• Do have the courtesy to clean your regifts.
• Don't give partially used gift cards.
• Do remember that regifts can be funny.
• Don't give something you've owned for a while.
• Do regift champagne.
• Don't give products from defunct companies.
• Do sell your gifts on eBay.

Not a bad list, but here are my rules:

1. Only re-gift new items. I would never give someone something I'd used and try to pass it off as new. Now I might tell them I tried it, liked it, and thought they'd like it too, but I'd be upfront about it.

2. Keep track of who gives you the item. Otherwise, be prepared to be embarrassed.

3. Only give gifts that you know the recipient will like. As such, if you know the person will like a fruitcake, it's ok to give them a fruitcake.

Basically my rule is to give a present that 1) I would like to give (the type of quality I would like) and 2) in a way that I would like to receive it. It's the whole "do unto others" rule. I have found that if you simply do that, you'll be ok no matter what gift you give.

BTW, I don't mind receiving re-gifted gifts either.

How to Write a Winning Resume

We've talked previously about how your career is your most valuable financial asset, offering you many financial benefits. You can make the most of it by getting a college degree and managing your career to its full potential. Doing this well can earn you millions of dollars in extra income throughout your lifetime. Part of managing your career means that you'll need to change jobs from time-to-time -- and to do this, you need a great resume.

But many people leave out what I consider the key to a great resume: quantifiable proof of accomplishments. In other words, what have you accomplished and to what (numerically substantiated) extent? For instance, here are a few examples of resume listings that work and don't work from my perspective:

• Doesn't work: Helped company save money.
• Works: Led cost-cutting task force that saved company $475,000 in three months.

• Doesn't work: Responsible for good sales growth results.
• Works: Spearheaded sales team that achieved 11% annual sales growth for five consecutive years.

• Doesn't work: Implemented new marketing program that led to increased consumer response.
• Works: Developed innovative marketing initiative that delivered 23% increase in customer retention versus previous program.

You see? The suggestions that "work" have quantifiable accomplishments (not to mention more proactive language.) Each "works" option says the same thing as the "doesn't work" option -- but it gives more detail (and takes more credit) regarding the results. Which person would you rather hire? I think the answer is clear.

I was reminded how important it is to write a winning resume when I found this piece on Career Journal. Their experience is similar to mine:

The way to sell yourself in a resume is to cite strengths and abilities that companies need from someone in the job you want and support them with your accomplishments.

"People want to know what you can do for them, and the way they can judge that is by what you have done for others," says Mr. Weitzman. "Basically, your resume must answer the employer's question, 'What can you do for me?'"

For each job you've held, tell readers what improvements you made for your employers.

The only thing I would add is this: the more specific you can be, the better off you'll be. Give them facts that show what you can do, and they'll beat a path to your door.

Of course this assumes that you actually do have accomplishments that will blow their socks off. If you don't, you need to get to work in your current position to get some "wins" under your belt so when you do look for a new position, you'll have plenty of examples to draw from as you write a winning resume.

The Finances of the Average American

Here's a piece I found that details the finances of the average (median numbers used) American. As you may know, the U.S. just hit the 300 million citizen benchmark, and MSN decided to look at the stats as of this milestone. The figures I want to highlight include:

Mr. and Mrs. Median's $46,326 in annual income is 32% higher than their mid-1960s counterparts, when adjusted for inflation, and 13% more than those at the median in the economic boom year of 1985. And thanks to ballooning real-estate values, average household net worth has increased even faster. The typical American household has a net worth of $465,970, up 83% from 1965, 60% from 1985 and 35% from 1995.

The fact is that in real terms, the Medians are doing great. After adjusting for inflation, Mr. Median makes 25% more than his father did 30 years ago. Mrs. Median is a lot more likely to work in the professional ranks than her mother was and to be paid about three times as much doing so. And though she still makes only 77% of what her male counterparts earn, this is up from 33% in 1965. They dote on the same number of children -- two -- but waited longer to have them, until both careers were well under way. They also pay less tax to the federal government and have 8% more purchasing power than they did 20 years ago and 5.7% more than they had just 10 years ago.

So basically, we're a lot better off now than we were then. However, the piece goes on to say that people are less happy now. Why? There's some speculation (not doing as well as they want to, having more choices shows them lots of things they can't afford, etc.) but no one really knows why.

I'm going to side-step the happiness issue and just comment on the financials. My thoughts:

1. The average American isn't making a fortune, but they aren't bad off (from an income standpoint) either. $46k per year is a respectable average. (Maybe not in New York City, but it sure is a good wage in the cornfields of Iowa.)

2. I'm surprised that the income/purchasing power is so much higher than previous generations. I would have guessed that it was up only slightly.

3. Decent net worth numbers, though those do have the value of homes in the figures. The issues here are: 1) home values may currently be over-stated and 2) many people (not me) advocate that net worth should be calculated without the value of your primary residence in the numbers.

4. We pay less tax to the federal government? Really? Does that mean we pay less tax overall? I doubt it.

Save Money on Your Car by Tracking Maintenance

Here's a piece I wrote (almost) one year ago today that suggests you can save money on your car by tracking maintenance. (It's a tip I use myself.) For details, check out Comments: Saving Money on Your Car; Tracking Maintenance.

How to Pay Off a Boatload of Debt Quickly

Here's a piece from MSN Money that details how some people paid off a huge amount of debt rather quickly. Let's start with some examples of what they did:

• The Gordons retired a $150,000 mortgage in just five years.
• Cards ($154,000 in debt) is on track to own his home free and clear later this year.
• Greg Cards of Newark, Del., was saddled with $154,000 in debt after his divorce.
• Wilkinson eliminated half of her [$49,000 credit card] debt in a year.
• Thompson paid off $8,000 in just nine months.

Now, how did they do it? Actually, it was rather simple:

• They made debt payoff a priority, although most continued to save for retirement as well.
• They kept their basic living expenses as low as possible.
• They looked for creative ways to speed up their debt repayment, and some took extra work.

Interesting set of steps, huh? Very similar to my three steps suggested in the Free Money Finance Guide to Getting Rich. And if they keep these habits going, these people will certainly become rich themselves -- or at least well-off.

I've said before that getting rich is rather a simple process. It's not easy, though, because it requires discipline. Getting out of debt is the same -- it involves only a few simple steps, but you have to be determined and disciplined to make it work.

How to Pay Yourself First

Here's a great comment left on my post titled How to Find Money to Invest. The reader shares some good (and simple) steps we all can take to automate our savings/investment plans. His thoughts:

Good list! I think the easiest way to accomplish this is simply by doing number 1 and pay yourself first. I know it has almost become a cliche, but it really is true. This is exactly how I am able to scrape together money for investing also.

If you have direct deposit of your paycheck, then there is no excuse for not paying yourself first. All you need to do is set up a separate account at your bank, checking or savings, whatever is free and doesn't have weird minimum or withdrawal limitations. Then change your direct deposit to put a little money into this account as well. Maybe it is $10 per pay, maybe it is $20, or even $100. Whatever you decide to do, make sure that the account isn't linked to your debit/atm card so it is hard to get access to.

Next, just link up your brokerage account to this bank account and you are all set. As you build up the account you can easily make investment purchases from that separate account. You can even go one step further as most mutual funds allow for systematic purchases as low as $25. So you can then setup a systematic buy that coincides with your deposits and then everything is automatic. Not only are you paying yourself first, but you've created an automatic process towards building wealth.

This is what I do, though my process is slightly different. My steps:

1. My entire paycheck is placed into my checking account (after money has been deducted for my 401k, of course.)

2. I have a set amount that gets transferred to Vanguard automatically each month.

3. The Vanguard money is then automatically invested in a handful of funds according to my investment objectives.

It's simple, easy, and once it's set up, it's all on auto-pilot. I'm saving/investing without even doing anything!

Smoking is Costing You a Fortune

I've certainly done my share of asking people to stop smoking. For reference, see:

• Don't Just Quit Smoking, Take the Next Step

• Stop Smoking

• Stop Smoking, It's Killing the Nation's Finances

• Stop Smoking -- It's Killing Your Finances

But it's been awhile since I've brought up the topic and I found this piece on the high cost of smoking, so I thought I'd revisit the subject.

As you might imagine, the article is filled with tidbits on how much smoking is costing you. I'm going to hit just the highlights. We'll start with the bottom-line:

The costs add up: Cigarettes, dry cleaning, insurance -- you can even lose your job. A pack-a-day smoker burns through about $29.40 per week, or more than $1,500 per year. That's a fat house payment or a nice vacation with the family. A 40-year-old who quits smoking and puts the savings into a 401(k) earning 9% a year would have an extra $250,000 by age 70.

And this is only the cost of the cigarettes themselves! There are tons of other costs that smokers incur as well (more on those later.)

Here are a few details on the cost of smoking:

The financial consequences of lighting up stretch far beyond the cost of a pack of cigarettes. Smokers pay more for insurance and lose money on the resale value of their cars and homes. They spend extra on dry cleaning and teeth cleaning. Long term, they earn less and receive less in pension and Social Security benefits.

And now, being a smoker can not only mean you don't get hired -- you can get fired, too: Weyco, a medical benefits administrator in Okemos, Mich., after announcing it would no longer employ smokers, fired four employees who refused to submit to a breath test. Recently it began testing the spouses of its employees, too, levying a $180-a-month surcharge on those who don't test clean.

The National Workrights Institute estimates that more than 6,000 companies refuse to hire smokers.

So, now do I have your attention?

The article goes on and on, documenting how smoking costs smokers in a variety of areas. These include:

• The cost of cigarettes themselves.
• Lost value on car trade-ins.
• Lost value on home sales (or at least costly treatments to get them "clean").
• Higher costs on life insurance.
• Higher costs on health insurance.
• Lost savings on homeowners insurance (non-smokers often get a discount.)
• Lower lifetime job benefits (they die before they earn as much as non-smokers.)
• Lost wages (smokers earn anywhere from 4% to 11% less than nonsmokers.)
• Bad breath, yellow teeth and smelly clothes are just a few of the personal side effects of smoking, and all cost money to correct.

Finally, here's one other striking stat that I just had to share:

We pulled some online quotes on 20-year term life insurance (a $500,000 policy) for a healthy 44-year-old male through BudgetLife.com. The range for a nonsmoker was $635 to $ 840 in premiums per year; for someone smoking a pack a day, the prices skyrocketed to as much as $4,410 per year.

Here are a few of my personal thoughts/observations on smoking:

• Smoking really is costing smokers a fortune. Of course, it's their money to spend, but I think few realize how much it does cost. For instance, people can smoke all their lives and then complain they can't afford to retire the way they want to. I suggest they re-read the information above.

• Here's just one example of how much it costs. Let's say you earn an average of $40,000 a year for 40 years of your working life. A smoker earns 7.5% (average of 4% and 11% numbers quoted above) less during these years. That costs smokers $3,000 a year. At 9% over 40 years, this equates to over $1 million.

• My parents have smoked all their lives and despite my mother having breast cancer, they have been unable to quit. I understand it's addictive, but at some point you have to realize the health and financial benefits of not smoking are so great that you MUST stop.

• When my parents moved out of their home of 20 years a few years ago (to a newer home), they removed the pictures from the "white" walls. It was unbelievable to see the color difference between where the pictures had been (still white) and the non-picture areas (brown/yellow) due to all the smoke through the years. It's sickening to me that we all were breathing that polluted air for all those years.

• Your health is even more important than your finances. If you won't quit to save some money, please consider quitting to save your life (or at least extend it.)

It's Budgeting Time of the Year (Almost)

I'm well aware that the end/first of the year is the time that many people review last year's budget, develop new budgets for the next year, or start a budget for the first time. As such, I wanted to be a little bit ahead of the curve and offer some links and resources on budgeting in this post. First of all, here are the links:

• Know and Control Your Spending

• Why do Millionaires have Budgets?

• Three Ways to Track Your Spending

• Thoughts on Quicken vs. Microsoft Money

• Pretend It's Not a Budget: How to Create a 'Spending Plan' You Can Stick To

• Five Keys to Developing a Successful Budget

• Budgeting Part 1: Creating a Family Budget

• Budgeting Part 2: Living on a Family Budget

• Budgeting Part 3: Reduce Your Spending

Now for some resources. In the past, I've suggested that a viable budget tracking set-up could involve a combination of Quicken or Money and You Need a Budget (for more details see The Benefits of You Need a Budget and YNAB Question of the Month: How Does it Compare to Quicken and Microsoft Money?), and this is close to what I personally use (I use Quicken plus my own self-created spreadsheet). That said, I've asked readers what they think about using Mvelopes as a budgeting option, and I've received very favorable responses. As such, I've been recommending Mvelopes for those who want an electronic version of the envelope budgeting system. Here are some links to help you consider their service:

• Compare to Microsoft Money

• Compare to Quicken

• Take a tour of Mvelopes Personal

• Financial Fitness Quiz

• Free Budgeting E-book

• Free Debt Calculator

• Get a FREE 30 day trial of Mvelopes Personal

Saving Money on Car Insurance

I realize that my post titled 301 Saving Money Posts -- Hundreds of Ideas on How to Save Money was a bit like taking a drink out of a fire hydrant -- it can get pretty over-whelming to look at all those money saving tips at once. As such, I decided to post sub-sections of that list every once in awhile so you can look at all the money saving posts I have on one particular topic (a much more manageable task.) Today I'm listing ways to save money on car insurance. Here goes:

• Another Advantage of Education: It Saves You Money on Your Car Insurance

• Buying and Saving on Car Insurance

• Save on Car Insurance

• Save on Car Insurance, Again

• Ten Ways to Save Money on Car Insurance

Reader Suggests How to Get a Raise

Here's a piece I wrote (almost) one year ago today where a reader told how he got a raise. If you're interested, check out Comments: 5 Steps to Getting that Raise; Inequity.

How Much You Should Pay in Mortgage Payments and Other Debt

Here's another item on Money magazine's list of 25 rules to grow rich by. Today's tip lists how much you should pay in mortgage payments and other debt:

Your total housing payments should not exceed 28% of your gross income. Total debt payments should come in under 36%.

We've had a lot of discussion here at Free Money Finance on various topics related to this advice including how much you should borrow when you buy a home, evil house loans, my formula for buying a house and paying off your house early, so I probably don't need to say much more. But I will add, however, that I prefer having debt be as low as possible -- whether that be mortgage, car, credit card (especially!) or other kinds of debt.

A New Way to Pay Off Your House

Here's a new, interesting idea. It's called an accelerator loan and it's designed to help you pay off your mortgage early. These loans have been popular in Australia and the U.K. (where one-third and one-fourth of homeowners use these loans respectively) and are now coming to the U.S. The overview from MSN:

Not to be confused with biweekly programs that shorten a mortgage through extra payments, the mortgage-accelerator program is based on an approach common in Australia and the United Kingdom, where borrowers deposit their paychecks into accounts that, every month, apply every unspent dime against the mortgage loan balances.

The piece then gives the details:

The premise is that borrowers finance a purchase or refinance existing property using home-equity lines of credit. Borrowers then directly deposit their entire paychecks into the credit accounts. Monthly expenses, other than mortgage payments, are funded by draws against the lines of credit, whether those are through automatic bill payments, checks, cash withdrawals or credit cards. Even if borrowers end up not paying anything extra on the principal during a month, they still capture some interest savings because the average balances are less than they would have been with conventional loans.

What? I need an example. Here goes:

As an example, let's say your mortgage payment on a conventional fixed-rate mortgage is $2,000 and your monthly net income is $5,000. With the mortgage accelerator, even if you spend the $3,000 difference, your average mortgage balance for the month is $1,500 less than it was with the conventional mortgage. That's because the entire $5,000 is deposited in the loan account and you made draws of $3,000 for living expenses spread over the month. At a 7.75% loan rate, that saves you about $10 in interest expense that month.

Now, $10 here and $10 there does add up over time, although both loan programs have annual fees of $30 to $60, but the accelerator part of the mortgage lies in having all your net pay going against the mortgage and an assumption that you have a positive monthly cash flow -- meaning you don't spend as much as you make.

In addition, these loans have an advantage over simply making additional payments on your mortgage:

Where a mortgage-accelerator loan program gives a homeowner additional flexibility, however, is in having a line of credit available if there is an emergency need for cash. If you make additional payments on a conventional 30-year fixed-rate loan, you can't borrow that money without taking out a home-equity line of credit or a home-equity loan. With the mortgage-accelerator program, you already have the line in place. That gives homeowners confidence that they can be aggressive in paying their mortgages and still have money readily available if a financial emergency crops up.

There are a few "watch -outs" (variable rate interest, etc.) that the piece also details, so if you're interested in more details, click the link above and read the entire article.

A few thoughts from me on this issue:

1. This is certainly a step in the right direction -- much better than the evil house loans we seem to see so much of.

2. In the end, this loan helps you pay off your house early, a financial move I support.

3. Personally, I don't like the "deposit your entire paycheck, use what you want, and the rest goes towards the mortgage" part of this. Seems like it would be a hassle if you wanted to keep a bit more in your account to save up for something down the road. (Maybe you'd then just transfer the money to a savings account?) I like a bit more freedom, and since I was able to be disciplined and make my own extra mortgage payments, I paid off my house the old-fashioned way. But, as the article says, accelerator loans will help people who aren't disciplined but who do want to pay off their mortgages early.

Net Worth Increasing by More than Your Salary

Here's a thoughtful comment left on my post titled Net Worth vs. Income:

One important thing to keep in mind is how much your net worth is increasing as a percentage of your income each year. If you save enough early and invest it wisely, you can look forward to the day that I can already see approaching. I'm looking forward to celebrating the year that my net worth increases by more than my salary.

A few comments here:

1. It's an interesting thought -- getting your assets to the point where they earn more than your income. At least that's what I think is being suggested here. Of course, some of your net worth increase each year is attributed to your savings during that year, which comes from your salary, so the two aren't always mutually exclusive. Nevertheless, it is a great day when you earn more from your assets than from your job.

2. I track and update my net worth monthly and have done so for years (through Quicken), though I put the most weight on my annual percentage gains.

3. This year, I'm at the point where my net worth increase will be equal to about 60% of my salary. While that includes money I've saved this year from my salary, it's not a bad number at all. Like the reader, I can't wait for the day when my assets give me a higher payback than my salary.

How to Survive an IRS Audit

Here's a piece from Yahoo Finance on how to survive an IRS audit. Their tips:

• Don't ignore the notice.
• Read and follow the notice.
• Organize your records.
• Replace missing records.
• Bring only what you're asked for.
• Don't be a jerk!
• Provide only copies.
• Stay on point.
• Know your rights as a taxpayer.

I've only been audited one time in my life (it was actually my wife's return -- it was during our first year of marriage and for a return she filed before we were married), but that experience taught me that this is a very valuable list. In particular, I want to highlight a few of their suggestions that really made a difference for us:

• Organize your records. We had all the required information with every piece of needed back-up. We appeared like we knew what we were doing (though, looking back, we were pretty clueless) and had legal support for every point they brought up (we knew in advance the issues they wanted to discuss.)

• Bring only what you're asked for. Stay on point.  Don't talk about any subjects they don't bring up. In other words, don't bring up any additional tax-related issues. Why give them a chance to hit you up on something else?

• Don't be a jerk! My wife is so friendly that she and the auditor became fast friends in the first 15 minutes of the interview. It worked to our advantage as the auditor then found an area where my wife had under-claimed her deductions. So we ended up getting a tax REFUND (over the amount she had originally claimed) when our audit was over! How often do you think that happens?

How to Give Great Gifts When Money is Tight

Let's face it, some people simply don't have a lot of extra money sitting around and when the holidays come up, it puts them into a financial bind. But there are alternatives to putting a bundle on your credit cards -- a bundle that it takes you months to pay off -- that will allow you to give great gifts for a fraction of what you might spend otherwise. The key is to think out of the box a bit. Here are some suggestions from MSN Money on how to give great gifts when money is tight. We'll start with their ideas on how you can trim your overall gift costs a bit:

• Agree to exchange cards instead of gifts with friends.
• Have a potluck instead of an elaborate feast that requires you do all the work (and grocery shopping).
• Make do with last year's decorations and clothes, or swap with friends.
• Persuade your extended family to draw names rather than have everyone buy everyone else a gift.
• Boot the adults and give gifts only to the kids.

We've done both of the last two and it has seemed to work. At some point, everyone's just giving gifts because they feel guilty if someone gets them a gift and they don't return a present. But once someone suggests "let's cut back," many people are relieved and happy it was suggested.

Next, MSN Money lists several more ideas to cut holiday spending:

• Cruise the deal sites.
• Use your spare change.
• Check your credit card rewards.
• Sell last year's misfires.
• Scope out your job perks.
• Look for two-for-one deals.
• The gift of photos.
• Regift -- carefully.
• Make a charitable contribution.

There are some really, really good ideas here. Personally, we use the regifting idea quite extensively (I've written about it in Is Re-gifting Okay? and Over Half of Americans Re-Gift, Do You?) and used the two-for-one deals too (buy a magazine subscription and get one to give as a present.)

We also often buy in bulk and get a great deal. Recently, there was a sale of a book we wanted to give to several people on our list. The cost was $12.99 for one book, but they had a quantity discount offer. We bought 15 of them, paid $8 each, had them signed by the author (who was in the store), and got a $5 gift certificate from the store for spending over $100 to boot. Not bad!

So, what other money saving ideas are out there? I'm sure you all have a ton of great suggestions. Please share them in the comments below.

Thoughts on the Purpose of Tithing

There were several good comments to my post titled The Purpose of Tithing that I thought were worthy of sharing with everyone. Here's the first:

We started tithing earlier this year, for just the reason you stated: To put God first in our lives. And it's sometimes hard to write that check each month--it's the next biggest payment we have, after our mortgage--but I wouldn't have it any other way. The Lord has already proven to us what He said in Malachi 3:10:

"Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this," says the LORD Almighty, "and see if I will not throw open the floodgates of heaven and pour out so much blessing that you will not have room enough for it."

I had the same experience -- first it was hard, then God showed Himself faithful. Now it's just a way of life for us.

The next comment gives a twist on tithing -- it's a better way to distribute money to the needy:

I look at Tithing much in the same way Charity works.

Within the Judeo-Christian beliefs. God created all, he owns all. We're mere stewards. A tithe, or a 10th, merely acknowledges this Lordship.

From a worldly perspective: those who aren't religious might see the advantage of tithing as a way of more efficiently redistributing your wealth and good fortune to those less fortunate more efficiently; as opposed to raising more taxes as a means of forced donations to causes I may not ever wish to be in any way charitable.

Finally, here's a non-religious look at tithing/giving with a similar thought on helping the needy this way:

I am not fond of religion at all. I do however give about 15% of my income to charities (non religious). Simply because I feel it is the right thing to do. If our government gave even 5% of the budget to good causes, we would live in a radically different world. The world we live in currently is largely shaped by the fact that 50% of the US budget goes to militarization.

Just an opinion to add to thoughts on tithing.

A few comments on this last one:

1. I am not fond of religion myself. I grew up "religious," but it wasn't until I discovered that Christianity is about a relationship, not a bunch of religious rules and doctrines, that my faith became alive.

2. The government is about the least efficient way to distribute anything. I think the answer rests with individuals. If people simply gave away 5% of their income rather than 2%, we would live in a radically different world (and one with fewer taxes, by the way.)

3. Actually, I'd say that defense is one of the legitimate reasons for the existence of government. Many of the other things the government is in to are not necessarily areas where it needs to be involved (in my opinion.) But don't get me started on the government, spending, taxes, etc. It's Sunday, and I'm trying to be nice! ;-)

Best of Free Money Finance

A few months ago I wrote several posts that listed what I considered to be my best posts on certain topics up to that time. I listed the topics/posts individually, but never did one big, collective post on them all, so here they are, finally, all together:

• Best of Free Money Finance: Investment Posts

• Best of Free Money Finance: Retirement Posts

• Best of Free Money Finance: Debt Posts

• Best of Free Money Finance: Credit Card Posts

• Best of Free Money Finance: Career Posts

• Best of Free Money Finance: College and Education Posts

• Best of Free Money Finance: Real Estate Posts

• Best of Free Money Finance: Tax Posts

• Best of Free Money Finance: Insurance Posts

Posts of the Week -- November 24

Here is a list of my favorite posts this week:

• Minimize Taxes to Maximize Your Investment Return

• Mvelopes a Winner for a Quicken User

• Free Money Finance Recommended Products Store -- Tell Me What You Think

• Educate Yourself So You Can Be Your Own Financial Advisor

• The Two Benefits of Diversification

• Six Wise Ways to Spend a Raise

If you're a regular reader of Free Money Finance and enjoy the content here, would you do me a favor and tell three friends? I sure would appreciate it!

Have a great weekend!
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Also, please visit our friends at Financial Web -- and tell 'em we sent ya!

Budget for the Holiday Season

Here's a piece I wrote (almost) one year ago today that's worth bringing up again (especially at this time of year). It's called Shoppers, Are You Ready? and reminds us all not to go hog wild with our spending this holiday season.

Five Keys to Investing Success, Key #5: Diversify

Here's part 5 of Kiplinger's five keys to investing success. Today, we'll be covering key #5, diversify. Their thoughts:

There are at least three good reasons to diversify your investments:

• As the adage goes, you shouldn’t put all your eggs in one basket.
• No investment performs well all the time; when one thing is down, another thing tends to be up.
• You may be able to increase your return by diversifying.

Yet another reason I like index funds -- they are diversified among many different stocks.

For more thoughts on investing your money, see these links:

• How to Find Money to Invest

• Index Investing Out-Performs Most Actively Managed Funds, Costs Taxes are Why

• Take These Steps before You Start Investing

• Learn from Millionaires and Others -- Don't Trade Frequently

Five Ways to Stay Safe at the ATM This Holiday Season

Here's a piece I was sent from CO-OP Financial Services. They suggest five ways to stay safe at the ATM this holiday season. Their thoughts:

ATM convenience is essential for hectic shoppers to get quick cash this holiday season. While Americans make more than 11 billion ATM transactions annually, December is always the busiest month for ATM usage, according to CO-OP Financial Services, which operates CO-OP Network, the nation’s largest credit union ATM network. In fact, in 2006, CO-OP Network set a record for the largest one-day volume in Network history, with over 3.5 million transactions just on Christmas Eve.

When ATM transactions increase, so do fraud, ID theft and crime at the ATM.  With 400,000 ATMs across the United States, these convenient cash machines can be an easy target for thieves looking for a quick buck. While most of these machines are secure, consumers should always take certain precautions, especially during the busy month of December. 

Here are some suggestions that help make trips to the ATM merry and safe this holiday season.

1. Come Prepared -- Before arriving at the ATM, prepare all documents and have your ATM card ready. Maintain a small supply of deposit slips at home, the office or in your car and fill them out before going to the ATM. “Criminals generally select victims who are unaware and unprepared,” says Stan Hollen, CEO, CO-OP Financial Services, which operates 25,000 ATMs across the United States and Canada.  “Attitude and demeanor are important, so walk purposefully to the ATM and stay cognizant of your environment – especially at night.”

2. Stay Aware of Your Surroundings -- Keep a constant watch of the nearby area while standing at the ATM. If you are using an indoor ATM where a card is needed for entry, don’t let anybody else in who you don’t know. Walk away if you see anything suspicious and if your transaction is in progress, be sure to cancel before leaving.

3. Select an ATM with an Unobstructed View -- Make sure you select a well-lit ATM that is visible to a passerby and not blocked by any barriers, including shrubs, signs or buildings.  Do not select an ATM at the corner of a building because it creates a blind spot while you conduct your transaction. If possible, select an ATM that is patrolled by a security guard or is equipped with a transaction surveillance camera. “If you must use an ATM at night, consider taking someone with you,” says Hollen.

4. Protect Your PIN -- Keep your PIN a secret -- do not share it with anyone. When entering your PIN at the ATM, stand between the machine and people waiting in line and shield the keypad with your hand or body.

5. Complete Your Transaction and Leave -- After your transaction is finished, make sure you have your card and transaction record. “Avoid counting or displaying large amounts of cash,” says Hollen. “If you get cash, put it immediately in your wallet, purse or pocket.” When leaving the ATM, make sure you’re not being followed. If you think you’re being followed, go to an area with a lot of people and call the police.

Star Money Articles for the Week of Nov. 20

Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond:

• Blueprint for Financial Prosperity highlights the world’s easiest inflation calculator.

• Consumerism Commentary says the U.S. mint will try dollar coins again.

• AllFinancialMatters discusses nine ways to manage money effectively.

• MightyBargainHunter asks what your time is worth.

• Five Cent Nickel offers thoughts on putting together an estate plan.

• InvestorTrip gives thoughts on how to retire rich in 10 steps.

• Getting Rich details this week's blog earnings.

FYI, today will be light blogging (just a few posts) due to fact that I know most of you aren't home today -- you're out there shopping! ;-)

Also be sure to check out the MoneyBlogNetwork Forums -- lots of great info on how to grow your blog's revenue!

Enjoy!

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Also, please visit our friends at Financial Web -- and tell 'em we sent ya!

Happy Thanksgiving

Just want to wish you and your family a blessed and very happy Thanksgiving. May we all take a break from talking about money and focus on the things that really make us thankful.

Free Money Finance Carnivals This Week

Here are the carnivals Free Money Finance is in this week and my posts that were included:

• Carnival of Debt Reduction - Save Money by Paying Your Credit Card Bills on Time

• Carnival of Personal Finance - 301 Saving Money Posts -- Hundreds of Ideas on How to Save Money

• Carnival of the Capitalists - 301 Saving Money Posts -- Hundreds of Ideas on How to Save Money

Stop by these carnivals to read some great posts!

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Free Money Finance is brought to you by Mvelopes Personal. Take a tour of Mvelopes Personal, take their Financial Fitness Quiz, get a Free Budgeting E-book or check out their Free Debt Calculator.

Also, please visit our friends at Financial Web -- and tell 'em we sent ya!

Save Money by Getting Free Prescription Drugs

Here's a real-life example of how a reader saves on prescription drugs. It's from Comments: Money Saving Tip: Ask for Free Drugs; Real-Life Example, a piece I posted here one year ago today.

The Best Credit Card You Can Use

Here's another item on Money magazine's list of 25 rules to grow rich by. Today's tip lists the best credit card you can use:

The best credit card is a no-fee rewards card that you pay in full every month. But if you carry a balance, high-interest rates will wipe out the benefits. If you carry a balance, you may pay a variable interest rate as high as 19%. And if you've been late with payments or used up too much of your credit limit, you may be hit with a penalty rate, which can run north of 30%.

I like (and use) this advice.

Of all the reward cards, I prefer a cash-back card so I can spend the rewards I earn however I like (I earned $330 last year.) That said, I have a second card that accumulates pseudo-cash that saves me a ton on my car expenses.

Five Keys to Investing Success, Key #4: Keep Time on Your Side

Here's part 4 of Kiplinger's five keys to investing success. Today, we'll be covering key #4, keep time on your side. Their thoughts:

The time value of money works against you if you’re the one waiting to collect the money, but it works in your favor if you’re the one who has to pay. Success often lies in being able to identify the proper side of the equation. You just need to keep in mind this principle—a dollar you pay or receive today is worth more than a dollar you pay or receive tomorrow.

While they don't say it specifically here, they're talking about the power of time and the power of compounding. If you put these two to work for you in the right way, you're on the road to becoming rich.

For more thoughts on investing your money, see these links:

• Take These Steps before You Start Investing

• Learn from Millionaires and Others -- Don't Trade Frequently

• Index Investing Out-Performs Most Actively Managed Funds, Costs Taxes are Why

• How to Find Money to Invest

Six Wise Ways to Spend a Raise

Here's a piece from Kiplinger's listing their six wise ways to spend a raise I've touched on this topic before in Six Great Ways to Spend a Raise, but I like what Kiplinger's has to say a bit better. Their list:

1. Pay off high-interest debt.

2. Build an emergency fund.

3. Add to your retirement savings.

4. Contribute to a flexible-spending account.

5. Add the extra money to your mortgage payments.

6. Use the money to beef up your kids' college fund.

My thoughts on each of these:

1. Great idea. Doing this can earn you a 20% guaranteed return.

2. If you don't have one, you need to get an emergency fund now.

3. Contribute enough to get the full company match (if you have a 401k that offers this benefit). Doing so can provide you with a 100% return on your money. If you don't have a matching 401k, go with a Roth IRA.

4. Good idea. Not a home-run like the first three, but still a worthy suggestion.

5. I like this idea -- even if my readers hate it. ;-)

6. College is going to cost you a bundle, so there's no better time to start saving for it than now.

The Two Benefits of Diversification

Here are the two benefits of diversification as listed in the wonderful book The Bogleheads' Guide to Investing (I LOVED the book -- see my rating for details):

• Diversification helps reduce risk by avoiding the "all the eggs in one basket" scenario.

• Diversification helps increase your return at the same time.

Then they give a brief paragraph on why you want to diversify your investments:

In order to diversify your portfolio, you want to try and find investments that don't always move in the same direction at the same time. When some of your investments zig, you want other parts of your portfolio to zag. Although diversification can't completely eliminate market risk, it can help to reduce that risk to a level where you feel comfortable enough to sleep well at night.

The book then continues and states that diversifying your investments is rather easy -- it can be done with a handful of funds quite simply.

I know I've gushed on this book quite a lot, but I want to say one more time how valuable I think it is. If you're an investor, you're thinking of becoming an investor, or have a friend, family member, etc. who fits either of these descriptions, The Bogleheads' Guide to Investing is a must read. Even if you don't take all the advice in the book, there still will be plenty in it (like the toll costs and taxes take on your investments) that will benefit any type of investor.

For more thoughts on investing, see Best of Free Money Finance: Investment Posts.

Save Money on Taxes by Making an Early Mortgage Payment

Here's a great money saving comment left on my post titled The Year-End Personal Finance Moves You Should Make:

Another solid year end financial move (for those with a mortgage) is to make your January 07 payment in Dec 06. It will result in added interest that you can deduct on your 06 tax bill. Granted, you will (potentially) have less to deduct next year, but a dollar today is worth more than a dollar a year from now!

I used to do this every year when I had a mortgage and do the same with my real estate taxes now. Yes, I want to cut my taxes as much as possible THIS YEAR -- and I'm sure I'll find some more things to deduct next year. ;-)

Besides, making an early mortgage payment could save you a bit on interest as well! And while you're at it, why not just make an EXTRA payment to help you pay off your house early?

How to Become a Millionaire

Here's a good thought on how to become a millionaire from my post titled Comments: The Typical American Millionaire, Part 2; Live Below Your Means posted here one year ago today. (Hint: it involves spending less than you earn.)

Saving Money on Appliances

I realize that my post titled 301 Saving Money Posts -- Hundreds of Ideas on How to Save Money was a bit like taking a drink out of a fire hydrant -- it can get pretty over-whelming to look at all those money saving tips at once. As such, I decided to post sub-sections of that list every once in awhile so you can look at all the money saving posts I have on one particular topic (a much more manageable task.) Today I'm listing ways to save money on appliances. Here goes:

• Are Tankless Water Heaters a Good Deal?

• Comments: Money Saving Tip: Maintain Your Stuff

• Drying Clothes

• Good, Better, Best Money-Saving Ideas: Appliances

• How to be a Savvy Bargain-Hunter when Buying a Major Appliance

• Maintain Your Stuff

• Save on Appliances

Five Keys to Investing Success, Key #3: Don't Take Unnecessary Risks

Here's part 3 of Kiplinger's five keys to investing success. Today, we'll be covering key #3, don't take unnecessary risks. Their thoughts:

How Much Risk Should You Take? Controlling risk means more than being “comfortable” with an investment. Too many investors seem perfectly comfortable with too much risk. The basic thing to remember about risk is that it increases as the potential return increases. Essentially the bigger the risk, the bigger the potential payoff. (Don’t forget those last two words; there are no guarantees.) That might sound exciting, but turn it around: the bigger the potential payoff, the bigger the risk of losing.

What is a prudent risk? It depends on your goals, your age, your income and other resources, and your current and future financial obligations. A young single person who expects his or her pay to rise steadily over the years and who has few family responsibilities can afford to take more chances than, say, a couple approaching retirement age. The young person has time to recover from market reversals; the older couple may not.

I'm probably one that takes a bit too much risk, but given my age, it's not that big a deal. I'm highly invested in stocks, but my time horizon is 10 years minimum, so I'm fine. Basically, the closer you are to needing your money, the less risk you can afford to take. That's why many people recommend that your investment in bonds increases as a percentage of the total as you get older.

For more thoughts on investing your money, see these links:

• Index Investing Out-Performs Most Actively Managed Funds, Costs Taxes are Why

• How to Find Money to Invest

• Take These Steps before You Start Investing

• Learn from Millionaires and Others -- Don't Trade Frequently

Educate Yourself So You Can Be Your Own Financial Advisor

Here's a comment left on my post titled Would You Hire a Part-Time Financial Advisor? It mirrors my own thoughts on personal finance learning and implementation, so I thought I'd share it with all of you:

I personally think most people are better served becoming educated enough so that they can be their own financial advisor. The vast majority of financial advisors appear to be financial product salesmen, first and foremost. Flat fee advisors would be my choice if I decided I needed one, but personally I think I know enough to get by without one. I may decide to hire one at some point, but if I did, I don't think it would be for investment advice, planning how much I need for retirement, or setting savings goals. I can do that pretty easily on my own, and by doing it myself I think I'm much better positioned than relying on someone else who isn't as "invested" (pardon the pun) in my financial success.

If I hired one, it would be for specialized knowledge that I didn't have or didn't have the time or desire to acquire. For that reason, I'd probably be more likely to hire a CPA or tax attorney, because those fields of knowledge pass that test for me.

That's the main purpose of Free Money Finance -- to help educate you so you can become your own financial advisor. That's why I comment on so many articles, link to various pieces, and include my own personal finance thoughts gleaned from my years managing my own money. If you just keep reading, something good is bound to rub off, isn't it? ;-)

Review: Health Care on Less than You Think

Here's one of the most boring and dry personal finance books you will ever find -- and one that most Americans need to read. The book: Health Care on Less Than You Think: The New York Times Guide to Getting Affordable Coverage (tt).

Health Care on Less Than You Think: The New York Times Guide to Getting Affordable Coverage (tt) is about what you think it would be about -- how to save on health care. But it offers a great deal more than that. I'll get to that in a minute.

First, the book contains some startling facts about health care including:

• A University of California study projects that by 2013, one in four American workers under the age of sixty-five -- nearly 56 million people -- will be uninsured.

• Nearly 20 percent -- 8.4 million -- of the 45.8 million people the government says have no health insurance are children, accoding to the Robert Wood Johnson Foundation.

• Almost half of the personal bankruptcies in the United States stem from overwhelming medical bills, according to research by Harvard Law School and Harvard Medical School.

• In 2005, for the first time, the cost of health insurance in the United States for a family of four surpassed the total before-tax income of a minimum wage worker.

Then it tells you what to do to select an affordable and competent health care plan. Topics covered include how to:

• choose among the health plans and minimize costs based on location
• shop for coverage when your job does not provide insurance
• assess whether health savings accounts help your budget
• track down the biggest savings on presecription drug costs
• master your insurer's fine print and win battles over payments
• manage Medicare and long-term-care insurance to protect your retirement savings

Overall, it's a comprehensive guide on the issue of getting, managing, and controlling costs on a good, solid health care plan.

Generally, I liked this book, not because it was entertaining, but because it contains good information that pertains to most Americans. It's a dry read (imagine reading about health care for 200 pages!), but an important subject. It could have been covered in fewer pages as it goes on and on a few times, but otherwise, it does a good job at covering an important topic.

The Free Money Finance rating for Health Care on Less Than You Think: The New York Times Guide to Getting Affordable Coverage (tt) (based on my 0 thru 10 rating system) is: 6 Stars.

And before I end this post, I wanted to highlight some of my previous posts listing ideas on how to save on health care costs:

• 16 Ways to Slash Your Health Insurance Rates

• Some Insurers Pay You to Get Healthy

• Another Way to Get an Incorrect Medical Bill Corrected

• Ask for Free Drugs

• A Third Way to Get an Incorrect Medical Bill Corrected

• Check Your Medical Bills, Part 2

• Comments: Money Saving Tip: Ask for Free Drugs; Get Coupons

• Comments: Money Saving Tip: Ask for Free Drugs; Real-Life Example

• CPT Codes Can Save You Money on Medical Bills

• Don't Pass Up Generic-Drug Savings

• Five Ways to Cut Your Health Care Costs

• Go Overseas for Major Medical Procedures and Operations

• How to Get an Incorrect Medical Bill Corrected

• Lose Weight

• Save on Prescription Drugs

• Seven Steps Retirees Can Use to Control Health Care Costs

• Watch Medical Bills

The Best Way to Improve Your Credit Score

Here's another item on Money magazine's list of 25 rules to grow rich by. Today's tip lists the best way to improve your credit score:

The best way to improve your credit score is to pay bills on time and to borrow no more than 30% of your available credit. It also helps to pay off debt rather than moving it around because the ratio of your credit card balance to your credit limit is key.

And why would you want to boost your credit score? Well, if you're borrowing money, a good credit score can get you a loan at a preferred rate. But even if you don't need a loan, a good credit score can still save you thousands of dollars.

For a couple other thoughts on how to boost your credit score, see Boost Your Credit Score and Nine Steps to a Great Credit Score -- Save Yourself Thousands of Dollars.

Free Money Finance Recommended Products Store -- Tell Me What You Think

Last year at the holidays I listed what I felt were the best money-related gifts for the season. This year I've gone one step further and created an entire store using an option available from Amazon. I've used "Free Money Finance Recommended Products" as the oh-so-clever name of the store. ;-)

A few comments on it before you stop by:

1. It's small. Only seven products (all books) are listed. Why? Because for an item to get into this store, I have to really, really, really like it. Not many items meet my standards. That said, the items that are in the store are 100% recommended by me and would make great presents for anyone interested in personal finance.

2. I'll be adding to the store throughout the year as new products make the cut.

3. I do earn a small commission on each product sold through the store, but the items here will not cost you a penny more than if you went directly to Amazon. Besides, I give all my revenue to charity.

So stop by the store (buy something if you like) and come back and tell me what you think about it. What's good? What's bad? Are there any products  you think are excellent that I should consider adding to the store?

What's Your Time Worth?; An Opinion

For some thoughts on the value of time, see Comments: What's Your Time Worth?; An Opinion, a piece I posted (almost) one year ago today.

Five Keys to Investing Success, Key #2: Set Exciting Goals

Here's part 2 of Kiplinger's five keys to investing success. Today, we'll be covering key #2, set exciting goals. Their thoughts:

Investment goal-setting is an intensely personal affair that will be guided by your own style and preferences. But if you set generalized goals, such as “financial security” or “a comfortable retirement,” you’re going to have trouble measuring your progress along the way. You may even struggle to maintain interest in the project. Vaguely defined investment goals can lead to halfhearted efforts to achieve them.

Better to set goals you can grab onto, goals that excite you. Instead of “financial security,” why not “$500,000 net worth by age 60?” Instead of “a comfortable retirement,” why not “an investment portfolio that will yield $2,000 a month to supplement my pension and social security?” Now those are real goals. You can put a price tag on each and use that as an incentive to keep up your investing discipline.

I think I'm on the same page with them, but their wording is throwing me off. Instead of "set exciting goals," I'd say "set meaningful and realistic goals." Why? Because "having $1 billion" is an exciting goal for many people -- but it's not going to happen for most. Instead, I'd suggest people develop meaningful goals and shoot for them. What's meaningful? Well, finding your retirement number and using that as a goal would be meaningful.

Also, the goal needs to be realistic. If you get your retirement number and there's no way you can reach it, what use is the goal? Instead, decide what's a realistic goal -- one that you can reach (which may mean you need to work longer, rely less on your retirement savings, etc.) Now this does not mean that you should keep from stretching yourself -- from cutting costs now, from saving now, etc. -- but a goal needs to be in the realm of reason to be worthwhile.

For instance, if I set $1 billion as my retirement number, that's not realistic no matter how much I try to increase my income, cut spending, etc. -- it's just not going to happen. But if I want to save $3 million for retirement, I'll still need to save, cut expenses, invest wisely and the like, so it'll still be a challenge to hit it, but it's certainly realistic as long as I'm disciplined.

So go ahead and set goals. I'm a big fan of them. However, don't worry about them being exciting, just make sure they are meaningful and realistic.

How Much do You Need to Save the Month for Retirement?

Here's a piece courtesy of Marotta Asset Management that challenges us to know how much we need to be saving for retirement each month:

There are only a few critical financial planning questions you need to be able to answer. Probably the most important is, "How much money do I need to save this month to meet my goals?" Many people don't know the answer to this question and avoid it to the detriment of their long-term financial well-being.

Most Americans spend more time planning their vacation than their retirement. At least with a vacation, most of us pick a date and actually plan to go. Planning for retirement should be every bit as planned and anticipated as your vacation. Assuming you'll work in your seventies and eighties is not a retirement plan. Neither is dying young.

Without an adequate retirement plan, you will outlive your money. If your financial investments are not sufficient to keep pace with inflation, you will eventually lose your lifestyle and your independence.

Imagine you are driving 120 miles from Charlottesville to Williamsburg. For the first 60 miles of the trip you average 30 miles an hour. How fast do you have to drive the second half of the trip in order to average 60 miles an hour for the entire trip? If you quickly answered 90 miles an hour, you got the wrong answer.

You really can't know if you are on track to retire without some complex mathematical projections. It is a difficult projection to eyeball and get right.

If a couple is approaching retirement with only $250,000 saved and a lifestyle of $50,000 per year, it's not hard to tell they are headed for financial hardship. They only have enough savings to last for about five years. Their problem is worse if all of their savings are in tax-deferred retirement plans such as an IRA or a 401(k). That couple's entire savings will be taxed at ordinary income tax rates when it is taken out, and therefore, it will be used at a faster rate.

Similarly, if that same couple living off $50,000 per year has a $1 million portfolio they probably have enough funds to retire. If you think a $1 million dollar portfolio is overkill, you haven't really run the numbers and factored in the erosion of buying power that comes with 50 years of inflation (Thank you, Federal Reserve.).

When my grandmother was first starting a family, five dollars would feed her entire household for a week. She died a couple of years ago at age 99 1/2. If you had told her she would need hundreds of thousands of dollars to have a comfortable retirement, she would have thought you were crazy. Many Baby Boomers are approaching retirement in a similar state of denial.

Going back to our example, the couple with a $1million dollar portfolio probably has only twenty years of spending at $50,000. If their investments don't earn a significant amount over inflation they could retire at 65 years old and be broke at 85. This lack of retirement planning is more likely to hurt the wife's lifestyle and independence since she is more likely to outlive the family's assets.

While young clients need to be able to answer the question "How much money do I need to save this month?" retired families must be able to answer the question, "How much money can I spend this month and still be financially secure for the rest of my life?"

If a family spends too much of their portfolio too early in retirement, they will not be able to recover. On the other hand, living on a shoe-string budget during retirement in fear of running out of money isn't much better. In order to find the right spending balance you need to do regular retirement projections during retirement.

Just as excessive spending early in retirement can jeopardize your retirement, so also failure to save enough early in your career can jeopardize retiring on time.

In our driving example above, driving 30 miles per hour for the first half of the trip makes it impossible to average 60 miles per hour, no matter how fast you drive the last half of the trip. Driving 30 miles per hour means that the first half of the trip takes two hours - the amount of time that the entire trip would have to be completed in order to average 60 miles an hour. You would need to drive 90 miles an hour for 180 miles - three times as far - in order to average 60 miles per hour for the entire trip. Put another way, a family who fails to start their savings quickly enough will also need to save longer to reach their retirement goals as well.

Find out today how much you should be saving and investing this month!