Free Money Finance

How to Make Credit Card Companies Pay You

Here's a piece I found from Money on why you should pay an annual credit-card fee. It's no a masterpiece (nor an article I agree with in most parts), but there are two pieces of information in it that I found interesting. The first is on how credit card companies make money:

A recent report from the Government Accountability Office estimated that about 70 percent of the credit card industry's revenue comes from interest and penalty rates, with penalty rates accounting for a growing portion.

No surprise here. Almost everyone know that banks love people to carry balances and they've been more aggressive than ever lately with the fees. That said, I had never seen the 70% number -- though it makes sense now that I do.

Here's the second piece of info -- also not a shock when you think about it:

Those who carry balances on which they pay interest and fees are subsidizing cardholders with no revolving balance who may even be in rewards programs, said lawyer Michael Donavan of Philadelphia-based Donavan and Searles.

Heh.

Yes, everyone has the same opportunity to spend what they want, charge what they want, carry what balance they like, and so on. Is it my fault if I never carry a balance and even use my credit card to earn almost $500 a year? In fact, I recommend others do the same: charge only what's in your budget, pay off your card every month, and get a credit card rewards program that pays off for you to boot.

Besides, the credit card companies still make some fees off those of use who pay our cards off every month. How? For instance, they earn merchant fees every time we charge. They also get the opportunity to sell us on alternative products like credit monitoring and the like. These are highly profitable and I'm sure some of us pay-every-monthers take them up on these services (I don't.)

But my bottom line is: don't pay the credit card companies -- make the credit card companies pay you! ;-)

Is Pet Insurance Worth the Cost?

Every day on my way to work I pass a pet clinic. For the past month or so, the sign outside has read "Pet Insurance Saves Lives." Obviously, they're selling pet insurance inside, but seeing the sign brought up the issue of pet insurance again and I wondered if it was a good deal or not. Then, reading Parade magazine a week or so ago, I stumbled upon an article titled "Should I Get Pet Insurance?" Here are their thoughts when it comes to the economics of pet insurance:

You easily can spend more than $7,000 on premiums over your pet’s lifetime. But don’t pick a plan based on price alone—the cheapest may not be the best. Usually, lower monthly premiums mean higher deductibles and/or co-payments. Estimate how much you spend a year on veterinary care and how much you ultimately can afford. Some vets feel that pet insurance is best for major expenses or emergencies but not for routine costs, which you could pay out of pocket.

Hmmmmm. $7,000? If a pet lives 14 years, that's $500 per year alone on insurance. This seems a bit high to me. Is this the going rate?

In the end, I guess it comes down to your philosophy on pet care and what you plan to do if/when you pet gets sick. Some people choose not to make extraordinary efforts to save a pet while others will do whatever it takes to save what they consider a member of the family. Pet insurance probably doesn't work for the former group but is likely a good move for the latter group (as long as you get the correct policy -- see the Parade article for details). Does this sound like a good rule of thumb to you?

Don't Choose the Job with the Highest Salary -- Here's a List of Other Factors to Consider

If you've been in the workforce for more than 15 minutes you know that your salary is only one part of making you happy at a particular job. There are a lot of other financial factors associated with jobs that make working at one place more enjoyable than working somewhere else. Here's a list from Kiplinger's on what factors besides salary you should consider before taking a job:

1. Benefits
2. Location
3. Commute
4. Opportunities for advancement
5. Work environment
6. Job security
7. Level of responsibility
8. Where do you want to be in ten years?

I've been in the workforce for almost 20 years now and I can vouch that all of these are extremely important. They vary in importance from one person to another, but all of them certainly factor into how much you "like" your job.

I've said before that your career is your most valuable financial asset, offering you many financial benefits. However, if you don't enjoy yourself at work, you'll be miserable. For instance, consider the following scenarios. Which would you like best:

Job #1

• Salary: $100,000 a year
• Benefits: Worth $20,000 a year
• Location: Far from friends and family in a town you hate
• Commute: Two hours each way
• Opportunities for advancement: None
• Work environment: Hostile
• Job security: None -- you could be fired at any moment
• Level of responsibility -- None -- you have to get every decision cleared through your boss
• Where do you want to be in ten years -- This job won't help you get there

Job #2

• Salary: $80,000 a year
• Benefits: Worth $15,000 a year
• Location: Relatively close to friends and family in a town you think is "ok"
• Commute: One hour each way
• Opportunities for advancement: Decent
• Work environment: Fine
• Job security: Average
• Level of responsibility -- Average
• Where do you want to be in ten years -- This job may or may not help you get there

Job #3

• Salary: $60,000 a year
• Benefits: Worth $10,000 a year
• Location: In the same town as friends and family which is a town you love
• Commute: Ten minutes each way
• Opportunities for advancement: Excellent
• Work environment: Wonderful
• Job security: Superior
• Level of responsibility -- Great
• Where do you want to be in ten years -- It's likely this job will help you get there

Ok, these examples are a bit extreme, but you get the point.

Let me know your thoughts on this issue in the comments below. Have you ever accepted a lower salary in exchange for more positives in location, commute or some other factor?

We're House Shopping

Several months ago, I detailed my real estate investing plan for the housing decline. Since then I've been watching house prices in my target area of the city as well as general trends around western Michigan. Well, it looks like prices are getting just about where I want them. In addition, my wife and I would like to be closer to our church, closer to several friends, have a bit more land, and live in a bit of a better neighborhood. Put all this together, and we're off to races -- house shopping.

For us this means we need to sell our current house and buy a new one -- and manage all of the ga-zillion tasks associated with each of them. We took the first step last week when we met with a realtor to get his perspective on the housing market (FYI, we got him referred from a good friend in the business, so we figured he could do the job. After talking to him and seeing his sales accomplishments, we were sure of it.) Here are our initial learnings/thoughts from our meeting with him as well as our own thoughts on the move:

• The agent said that currently for every 10 homes on the market, one is sold. Ouch. That hurts us on the selling end. On the buying end, it helps us as people are much more willing to negotiate. (BTW, I just read in Money magazine that Grand Rapids home sales are down -22.7% from the previous year, so there are bound to be lots of motivated sellers and extreme competition on the buying side for us.)

• On the selling end, we are in an excellent position compared to many others. We own our house outright and we aren't locked into a specific number we "have" to have in order to meet a bank's obligations. We can look at the market and set a fair price -- not one dictated by finances that are stretched too thin because of a huge house mortgaged to the hilt.

• We have a decent amount of savings that will allow us to get into the new house without having to sell the old house. Of course, we'd prefer to sell the old house first, but if it doesn't work out that way, we can put at least a 20% downpayment on the new house without selling the old house.

• We'd be trading up in home values, which has a couple advantages. First, there are less buyers in this range, making sellers much more willing to negotiate. Second, even if they don't negotiate off going rates, the 15% price decline seen in the market overall will work to our advantage as we'll gain more on a house we buy than we'll lose on the house we sell. Look at it this example: a house that was worth $200,000 two years ago is now worth $170,000 -- we'll "lose" $30,000 if we sold such a house. But a house purchased for $350,000 today, was a house worth $412,000 two years ago -- we'd "gain" $62,000 in "worth" on the new house. I know this is fake math -- we'd still sell for the selling price and buy for the buying price, but you get the point: if there's an across-the-board 15% decline, then more-expensive homes are down more and thus "better values" in absolute dollars.

• That said, now a bigger portion of our net worth will be dedicated to real estate -- not something I'm particularly excited about. But there are some quality-of-life issues that make it worth it for now.

• The agent is willing to negotiate his commission. I'll write more on this in detail later, but since we are both a buyer and a seller, we can structure our deal with him so he still makes thousands of dollars but most of it won't be paid by us. ;-)

• We'll need to move ourselves -- not a pleasant task. The last time we move within a city was 15 years ago -- before kids, before tons more stuff, and before bad backs. ;-) It should be interesting as we balance cost versus convenience. We'll probably have movers take the big stuff and move the rest ourselves (with the help of friends.)

I'll be sharing more and more details of this move as we progress (including a few surprises for why we're moving) as time goes on. For now I wanted to tell you the basics and inform you all we're on the hunt. ;-)

Thoughts on Taxes on Tax Freedom Day

Here's an article courtesy of Marotta Asset Management that gives some interesting thoughts on taxes:

Tax Freedom Day arrives on Monday, April 30th this year. That's when we stop working for the government and start working for ourselves. For the average worker, all of the earnings of the first 119 days go to pay taxes to the federal, state, and local governments. Starting May 1st, we are free -- at last -- to take care of our own family's needs.

The 2007 report, published this month by the non-partisan Tax Foundation based in Washington, D.C., measures the tax burden on Americans. According to the report, the 2007 federal tax freedom day comes more 12 days later than it did in 2003, though it is still five days under its all-time high in the year 2000.

However, the overall Tax Freedom Day falls two days later than it did last year, even with the absence of tax increases. Gross Domestic Product has been strong, growing by at least 6.3% per year for the last three years. More wealth for Americans means an increase in Uncle Sam's share.

Due to our progressive tax system, Uncle Sam actually collects more taxes as inflation rises due to 'bracket creep.' If your pay is adjusted each year to keep up with inflation, the dollar figure you make increases but your net purchasing power remains unchanged. However, inflation may actually drive you into a higher tax bracket despite the fact that your buying power has not increased!

On average, taxes still take nearly 33% of a worker's gross income – 22% for federal taxes and 11% for state and local taxes. Only since 1992 have Americans paid more for government programs than they spend on food, clothing, and medical care combined. For the amount of money we pay in taxes, government should already be able to provide universal health coverage and feed and clothe us as well.

For every eight hour day we work, 2 hours and 35 minutes of our work goes to paying taxes. Without taxes, you could leave work at 2:25pm.

At the state level, tax freedom day varies from state to state. California has the 7th highest taxes with its Tax Freedom Day delayed until May 7th. Virginia places 17th in the race for the highest tax state rate even though its Tax Freedom Day arrives on April 30th, exactly the national average.

The Virginia tax rate continues to climb higher each year despite claims of no new personal taxes because of both bracket creep and the significant increase in state business taxes. This has been a national trend. Business tax receipts have risen more than 20% over the past year.

Most non-economists vastly underestimate the negative impact of tax rates on the U.S. economy. Taxes encourage every American to do things themselves, outside of the taxable economy, even if specializing and working together would have produced higher productivity. If you add the costs of complying with the complex web of regulations, the government costs Americans over 50% of our wealth.

Imagine three builders who, by themselves, could each build a house in a year. Three builders could build three houses working separately. Now image that because of their specializations they could build six houses by working together. It may seem incredible that these builders would not take the opportunity to double their productivity, but with any tax rate higher than 50% they have no incentive to choose the more productive partnership. Just imagine the economic boom if the other half of worker's labor were set free!

Imagine a highly paid and highly skilled doctor whose marginal tax rate is over 50%. Everything that she pays someone else to do costs her twice as much because she pays for that service with after-tax dollars. It may be very inefficient to society for her to waste her time mowing her own lawn, changing her own oil or painting her own house, but specifically because she is in a high tax bracket, she can save more money than the average American by doing those chores herself. Another way to look at it is that without taxes, she could afford to pay those who provided her services twice as much.

Economist Arthur Laffer recognized that the law of diminishing returns applies to tax rates as well. According to Laffer, there comes a point beyond which increased taxation actually yields fewer tax dollars being collected. For example, a 100% tax rate would drive commerce into the ground, resulting in zero taxes being collected.

Many economists believe we are already well beyond that point for the most Americans. In other words, tax cuts would actually result in increased economic growth and more taxes being collected.

Presidents Kennedy and Reagan understood the Laffer Curve well. In 1964, Kennedy reduced the top tax rate from 91% to 70% and, to the surprise of many, tax revenues increased! Seventeen years later, the Reagan tax cuts reduced the top marginal rate from 70% to 50%. Revenues soared again. Between 1980 and 1997 the share of federal income taxes paid by the top 1% rose from 19% to 33%. The share of taxes paid by the top 25% increased from 73% to 82%.

Economists understand that the optimum rate of taxation is zero. The second most optimum rate of taxation is as low as possible. In contrast, many Americans seem to have the attitude that tax rates should be increasingly punitive.

The top 1% pays 35% of the taxes in the United States. The top half pays almost 97% of income taxes. These two statistics have increased despite all the complaints that tax cuts have favored the rich.

Low taxes should not be a political issue that divides us. Every American should agree with the goal of keeping taxes as low as possible. In 2011, all of the federal tax cuts enacted since 2001 are scheduled to expire. In the words of John F. Kennedy, "An economy hampered by restrictive tax rates will never produce enough revenues to balance our budget - just as it will never produce enough jobs or profits."

What's Your Opinion on What the Bible Says about Giving?

I take a lot of grief for my stance on tithing (that's ok, I kinda like the discussion), but often people criticize my views without offering their own. I try to get them to explain what they see as the alternative, but many don't stick around that long. A couple have shared their thoughts, however, and I'll be commenting on them in future Sunday posts. But for today, I want to know what you think the Bible says about giving. In particular:

• Do you personally think that tithing is a principle for New Testament Christians?

• If you do believe in tithing, do you think the Bible suggests gifts over and above the tithe?

• If you do not believe in tithing, what is your general view on how/how much Christians should give? In particular, is there a minimum amount they should be giving?

• What percentage of your gross income do you give away each year as a result of your beliefs listed above?

There! That should get some conversation flowing! ;-)

Stats on Income, Commute Time, and Vacation Days

Parade's annual "What do you make?" survey really didn't have much new news in it, but I did like the various career-related statistics they had at the end of the piece including the following:

High school graduates [hourly wages]:

• Men: $15.65
• Women: $12.34

College graduates [hourly wages]:

• Men: $28.06
• Women: $21.30

Once again, looks like we see that a college education is well worth the investment.

Time traveled to work:

• Longest average commute: New York: 31.2 minutes
• Shortest average commute: The Dakotas: 16 minutes

Ha! BTW, one of these is a city and the other is TWO STATES. Someone needs to tell Parade that. ;-)

What sort of value do you put on a shorter commute? I have a 15-minute commute myself and it's worth a ton to me (though I'd have to think about it if you'd ask me to quantify it.)

Average vacation time:

• French: 39 days
• Germans: 27 days
• English: 24 days
• Canadians: 19 days
• Americans: 14 days

Yeah, we're hard working, but we're also overworked. Man, the French have it made. Throw on all those holidays and you're probably looking at close to 50 days off a year. That's 10 work-weeks!!!! Holy cow, how do they ever get anything done over there??????

Posts of the Week -- April 27

Here is a list of my favorite posts this week:

• Investment Smackdown: Are Stocks or Real Estate a Better Investment?

• How Much You Should Be Saving

• How to Overspend on a Six-Digit Income

• M.B.A.s Don't Prepare Managers for Real-Life Challenges

• Don't Count on an Inheritance to Get Rich

• Publix Turns Up the Heat to Prove Store Brands are as Good as National Brands

If you're a regular reader of Free Money Finance and enjoy the content here, would you do me a favor and tell three (or four) friends? I sure would appreciate it! And if you're not a regular reader, what are you waiting for? You can subscribe easily to Free Money Finance by using this link.

Have a great weekend!
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• Blue Cash from American Express - I recommend it because it made me almost $500 last year

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• Financial Web - Lots of good information here!

One Year Ago This Week -- April 27

Here are some posts worth re-reading from one year ago this week:

• Three Strategies for Higher Investment Returns

• 20 Ways to Save Money on Your Car, Part 1

• The Richest Man in Babylon: Seven Cures for a Lean Purse Part 1, Start Thy Purse to Fattening

• Comments: Bad Advice from a "Financial Planner"

• Does an Elite College Really Pay?

Owning Versus Renting a House Nets You a 7.6% Return

In its May issue, Money magazine tackles the issues of what the annual return is on renting versus owning. Of course, they have to make some assumptions ($300,000 house in Raleigh, NC, stay in it six years, 3% annual appreciation) to work out the math (and these would be different for different parts of the country), but at least their analysis serves as an example. In the end, they come up with 7.6% being the rate of return on buying a home over renting.

What was interesting to me is that I've never seen an analysis done in this much detail and with a specific answer at the end -- 7.6%. It's good to give it some perspective, namely that it's a "good" deal usually to own versus rent, but it's not "outstanding." I guess if it was outstanding, there wouldn't be any debate now, would there?

As for the debate on renting versus owning, here's what I've written on the topic in the past:

• Why Homeowners Get Rich and Renters Stay Poor

• When to Buy versus When to Rent

• Is the Falling U.S. Housing Market Making Renting Better then Buying a Home?

Can We Please Have Some More Personal Responsibility in Our Finances?

Here's a piece from Yahoo on how one senator wants the government to foot the bill for the subprime lending fiasco.  On one hand, the effort makes financial sense:

A report by the Joint Economic Committee of Congress, which Schumer chairs, estimates that the average cost of a foreclosure -- to the homeowner, lender, local government, and neighbors (whose homes decline in value) -- is $78,000. By contrast, preventing the foreclosure would cost $3,300 per home on average.

Spending $3,300 to save $78,000 is a no-brainer -- I wish all government spending was so productive. Then again, is $78,000 a real number and will $3,300 really save the day for someone who borrowed way too much on a bad loan? The numbers are from the government, after all, so I'm not quite convinced they are accurate.

Besides, what about personal responsibility? What about the freedom to make our own decisions (and the "right" to accept the consequences of them?) Shouldn't people suffer the effects of their own financial stupidity?

That's what Laura Rowley thinks. Her position:

On the other hand, as far as I can tell, none of these modern-day bandits held a gun to anyone's head and forced them to take out a loan.

"There's a lot of discussion in Congress about how these are predatory loans, and widows and orphans are being thrown in the street," says Keith Gumbinger, vice president HSH Associates, a financial publisher. "But some of the issues we're dealing with today are self-inflicted wounds -- people who didn't bother to read applications or documents and signed for a loan."

Someone once said "you do the crime, you do the time." Same applies here doesn't it?

She continues:

Clearly, lenders, investors, and homeowners should step up to the plate here -- not taxpayers. In a hearing on the crisis in March, Schumer said families were "teased into unsuitable subprime loans."

"Teased into"? What kind of language is this? When did we transform from being a culture of opportunity to a culture of victimization? Taking out a mortgage is a choice, and choices have consequences. If we want to own our financial successes, we also have to own our financial mistakes.

And what kind of message does a government bailout send to Americans who did things the right way? People who had a job, paid their bills on time, built solid credit scores, saved for a down payment, read their loan terms, and scrutinized their budgets to make sure they could afford not only the mortgage payments, but the taxes, insurance and maintenance on their homes?

She's on a roll:

More important, what kind of precedent does a subprime bailout set? Undoubtedly, foreclosures will cause personal tragedy, as well as economic dislocations in the affected communities. But there's a much, much larger crisis brewing: Rising poverty among the soon-to-retire baby boomers who haven't saved for retirement.

When they can't work any longer, and don't have enough to live on, and cause a dislocation in the economy, will Congress bail them out too? Will Schumer be around to go after the "rogue" retailers and "bandits" who "teased" Americans into buying consumer goods when they should have been saving for retirement? Or will the government just put the burden on those of us who have done the right thing all along?

This is one issue that irks me about our society -- everyone wants to blame someone else for their own mistakes. They want the right to do whatever they want to do, make whatever decisions they want to make and so on, and as long as things are good (whatever good means to them), all's right in the world. But the second things turn south, they're looking for someone to blame. After all, they themselves couldn't be the ones to blame now could they?

The same holds true for personal finances. People have the right to spend their money however they want it. They can enter into whatever contracts they want to. They can save or not save, spend or not spend, invest or not invest -- it's all up to them. But then they need to live with the consequences of their decisions.

Yes, as a society we will certainly be better if we bail out people from some stupid decisions. It will be better for me and you to not have people with no money wandering the streets. But this is an extreme example. Will it really hurt us that badly if a few people suffer for poor financial judgment?

And what really galls me is the fact that the principles of personal finance are so basic, simple, and easy to learn that anyone out of elementary school can understand them. Personal finance is not rocket science (if it was, I couldn't write about it). If you simply do the basics right, you'll be well off. It seems that most people can learn and apply wealth-building principles -- but they just don't want to. Instead, they "wing it," make whatever un-informed decision they want to make, then expect the rest of us to bail them out.

Whew! Thanks for letting me rant. I'll be back to my normal self soon. ;-)

Another Example that Earning a Boatload of Money Won't Make You Wealthy

Here's another example of a couple that earns a six-figure income but is going backwards financially because they can't control their spending. The details:

Dohy and Farber have almost no savings - between the two of them, only a few hundred dollars in the bank and a few thousand in retirement accounts.

They've also got around $40,000 in credit card debt, with only closets full of "stuff" and memories of dinners out to account for it.

The two don't lack for money. Farber and Dohy earn a combined six-figure income in medical-supply sales. It's their behavior that's out of whack.

At this point, there's not much I can say that I haven't already said on this issue, so I'll just repeat the basics to remind us all what's going on here (and how to avoid it):

• It's not what you make, it's what you spend. It's better to earn $40,000 a year and spend $35,000 of it than to make $100,000 and spend $110,000. One couple is going forward in this instance, and it's not the one making the big bucks.

• This is the reason that I think spending less than you earn is financial principle #1. If you don't do it, you're sunk no matter what else you do. In fact, it's the key to financial security and the first step in becoming rich.

• Living above your means is the biggest barrier to becoming rich.

• If you can control your spending, then making more money can really be a big benefit to your finances. For some tips on how to add some extra income to your life, check out Free Money Finance Guide to Making More Money and some of my $10k ideas.

Financial Planning for the Second Half of Marriage

Here's an article courtesy of Marotta Asset Management on financial planning for the second half of marriage:

My wife and I are celebrating our twenty-fifth wedding anniversary this month. Our oldest child is now a freshman in college and our youngest is a sophomore in high school. The financial planning issues that were important during the first half of our marriage become critical as a couple enters the second half.

The second half of marriage can either be the best time of life or the time when a marriage breaks up. The transition can catch unsuspecting couples off guard.

A survey from the book "The Second Half of Marriage" surveyed couples' responses to the question: "What are the areas that cause the greatest stress in your marriage?" In every decade of life, the number one answer was "finances." Budgeting, retirement planning, and other money issues can easily ruin what might otherwise be a time of remembering why you got married in the first place.

Times of transition are particularly hard on marriages. As the work of raising a family wanes, couples often look to each other for help in redefining their calling in life. Mothers who have devoted years to caring for children may want to fulfill one of the dreams they postponed decades ago. They may want to go back to school, take on a new career, or be more involved in charitable causes. Husbands, on the other hand, may find they are ready to scale back their careers.

While having a close friendship and spiritual commitment are the most important ingredients of a fulfilling relationship, financial troubles are usually the primary point of contention. Fulfillment in the second half of marriage will require reconnecting with our spouses. Part of that process will mean proactively working on your finances, together.

If you and your spouse are approaching this season of transition, take this opportunity to check-up on your retirement money, your marriage, and your mission.

First, get your retirement plan together. A retirement plan, like a spending plan, helps a couple limit their disagreements to only those issues outside the plan.

It is at this point that a little advance planning can make a world of difference. If you have to choose between funding your retirement and paying for your children's education, your desire to fund your kids' college education may not be the best choice. The government will loan you money for college but not retirement. You can also drastically reduce the costs of college but not so with retirement. If necessary, your children can borrow for their college education. If they do, they still have a long time horizon in which to repay those loans and to build wealth.

For most couples, expenses drop significantly after their children finish college. Although saving in the early years of marriage is ideal, when the kids are finally off on their own, couples get one last chance to save for retirement.

These years before retirement are critical in determining whether you have sufficient assets to retire. During this time, it is important that your investments are not invested too aggressively or too conservatively. Between age 45 and 65, the size of your portfolio should at least double and then double again. By the first day of retirement, you should plan on having about 23 times your annual income.

Next, reestablish opportunities for communication with your spouse. The period just before the children leave home is often the most difficult on the marriage relationship. After a quarter century, the communication focus of most couples is their children. Creating new channels of communication that are spouse-centered are critical during this time of transition.

The natural course of relationships is to drift apart. So, don't be down on yourself if you and your spouse are 'working' on your marriage. The fact is, if you aren't working on your marriage, it is probably headed in the wrong direction.

Finally, find your mission for this new phase of your life. It is easy when you are young to think you have all the time in the world for all the good things in life. First your job, then the kids rightfully occupied much of your time. But, as these responsibilities begin to ease, revisit the bigger life questions which are critically important, even if they aren't immediately urgent.

George Kinder in his book "The The Seven Stages of Money Maturity" uses three questions to help people understand these life questions. Take the time to write out your answers honestly and thoughtfully, and then share your thoughts with your spouse.

1. If you knew you would have all the money that you needed, now and in the future, from this moment forward, how will you live your life?

2. If the doctor told you that you would die suddenly and without symptoms in five to ten years, how would you change your life for the time that remains?

3. If the doctor told you that you would be dead within twenty-four hours, what feelings, regrets, longings, and unfulfilled dreams would haunt you?

Nothing is more meaningful than structuring your life around lasting values. Sometimes the vague nebulous answers that we live by are not ultimately satisfying. Reevaluating our purpose can give renewed meaning to our lives and relationships, especially in this season of change.

Star Money Articles for the Week of April 23

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

• Consumerism Commentary says he buys generic and store brands sometimes.

• AllFinancialMatters asks if payday loans victimize people.

• MightyBargainHunter details his yard sale finds.

• Five Cent Nickel lists the costs of a wired world.

• Blueprint for Financial Prosperity says that 2007 graduates are seeing big pay increases.

• Generation X Finance gives an economic review of the first quarter.

• Binary Dollar discusses home equity loans and taxes.

• Money Smart Life asks what is the most effective way to donate money?

• Money, Matter, and More Musings asks how big is your monthly electric bill?

• The Digerati Life discusses stock market technical analysis versus fundamental analysis (in pictures.)

• The Sun’s Financial Diary says that low-cost Vanguard goes with even lower costs.

• Consumerist suggests knowing the full cost of car ownership.

Enjoy!

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Free Money Finance is brought to you by (note: all revenue from this site is given to charity):

• Blue Cash from American Express - I recommend it because it made me almost $500 last year

• Get a FREE 30 day trial of Mvelopes Personal - I recommend it because my readers like it

• You Need A Budget: the simple, effective, powerful budgeting system - I recommend it because my readers like it

• Financial Web - Lots of good information here!

Eight Work Perks You Wish You Had

Following up on our discussion regarding what unusual benefits you get from your job is this piece that lists eight work perks you wish you had. Their list:

• Paid and unpaid sabbaticals
• Set your own hours
• On-site child care
• Time off to bond with the kids
• Help caring for aging parents
• Help with the errands
• A break on the mortgage
• More vacation time

Only a few of these appeal to me. Here they are, listed in order of what I'd prefer to have first, second, and so on:

• Set your own hours
• Paid sabbaticals
• More vacation time

Basically, they all revolve around time. More time away from work or at least at work when I want to be. Here's how I'd deal with each of the three above if I had them:

• Set your own hours -- I'd be in at 6 am, work through lunch, and out by 2 pm. Yee haw!!!!!

• Paid sabbaticals -- I'd take some time off and volunteer for a non-profit.

• More vacation time -- Duh. What couldn't I do with more time off?

In addition, the article lists company benefits that are offered by more than half of the 916 U.S. companies surveyed by Hewitt Associates:

• Immediate eligibility for a health-care plan.
• A 401(k) plan in which the typical match is 50 cents for each $1 an employee contributes, up to a certain percentage of pay.
• Retirement eligibility at age 65 and health-care coverage to retirees.
• Access to a dental plan with 100% of exams covered and 80% coverage for dental work.
• Access to a vision plan separate from medical or dental coverage.
• A group life insurance plan that pays a year of salary or wages as a death benefit.
• Long-term-disability benefits with pay replacement of 60%.
• On average, 11.7 days of vacation after one year of service and 15.4 after five years of service.
• Eight to 12 paid holidays a year.
• Dependent-care spending accounts and access to a health savings account.
• Educational reimbursement up to a median of $5,000.

We have a very strong health plan and 401k and I have a decent vacation package. Other than that, we're lagging behind most others. Then again, the ones we are really strong in are the ones I really care about.

So, which benefits would you like to have? And how does your company stack up versus the others?

How to Change Your Career in Middle Age

When I find a new topic relating to personal finance, it seems like I discover articles on the issue in droves. I've recently talked a bit about changing your career later in life and here's another piece that covers the same issue. This one is from Parade magazine and they give three tips for how to switch from one career to another:

• Open Your Mind: Think about  the things you enjoy and what you liked to do as a child.

• Be prepared: Figure out how much time, money and training you’ll need to pursue your goals. Speak with your family about how your plan will affect them.

• Get sound advice: Ask your family, friends and professionals for input. Check the library for books about your new career.

I'd especially like to emphasize #2 since your career is your most valuable financial asset. You don't want to do anything crazy with your chief (only?) source of income -- especially if it's something that dramatically impacts your overall financial situation -- unless you really, really, really understand the impact it will have on you and your family. That said, if you go into the decision knowing that you'll take a big hit financially and you're ok with that, a career move can be something that's very fulfilling. And what use is it to have $2 million in the bank if you're miserable?

That said, I'd recommend changing careers and INCREASING your salary as a better alternative. ;-)

Unfortunately, that's much easier said than done.

Drive Slower, Save Money

Here's a money saving tip I found in the May issue of Kiplinger's:

Slow down. Every 5 miles per hour you drive over 60 mph is like paying 20 cents more per gallon.

Yikes! Looks like my recent trip to see my family cost me $3.80 a gallon! ;-)

Investment Smackdown: Are Stocks or Real Estate a Better Investment?

Just after we finished discussing the pros and cons of real estate versus stocks, Money magazine came out with a feature article in its May issue (sorry, I can't find a link for it online) that compares the two. It's a full-out analysis of what makes real estate a great investment, what makes stocks a great investment, and how the numbers for each line up. They look at several factors including performance (return), leverage, costs, taxes, transparency (how easy it is to assign a value), effort, volatility, and diversification -- using cold, hard facts along the way to back up their findings.

So, what's their conclusion? Here's the summary:

Stocks win the bout four rounds to three, with one round a draw. But the fight is in truth considerably more lopsided. Stocks roll up large margins of victory in performance, costs, diversification and effort you need to expend as an investor. Real estate's only big win is leverage.

But don't get them wrong, they still think buying a house is a great financial move. They're just saying that for investment purposes, they think stocks out-perform real estate. Their two cents on the issue:

Using that leverage to buy a home you can afford makes sense. You're building equity and collecting other benefits as well. But jumping into the real estate ring thinking you'll use others' money to score an investing knockout is pretty risky. And the big prize, as you may have noticed if you've tried to flip a condo lately, is more elusive than it might have seemed.

Notice they said "a home you can afford?" It's a key point. Many people stretch too far to buy a house they really can't afford and end up in deep financial water.

The piece is a very interesting read and I suggest you either get the magazine or find it online (which I'm sure it will appear eventually -- probably sometime in May.)

By the way, this is the same conclusion Forbes came to in determining the winner between stocks and real estate. Their main thoughts:

But if you take a longer view--say 25 years--you'll find that the S&P 500 has actually stomped the real estate market, from Boston to Detroit to Dallas. From the start of 1980 to the end of 2004, home sale prices increased 247%. A pretty sweet deal, it would seem. Over the same period, however, the S&P 500 shot up more than 1,000%.

So from here, the only issue is how to make the most of your stock investing, right? You know how I'm going to answer that one. ;-)

Who Are Your Dependants?

One of the most enjoyable blogs I read every day is DigitalRichDaily. It's a story-telling blog written by a friend of mine living outside Nashville, Tennessee. He does/has done some of the most stupid/funny things you'll ever read about. It's made even funnier by the fact that I know he's a very successful businessman.

He hardly ever talks about money (another reason I read his blog), but recently he posted Tax Time: Who Are Your Dependants? and shared these two facts:

1. The top 50% of earners in the US pay 96.54% of all Federal Income Tax. N-I-N-E-T-Y S-I-X percent. Look around you. The other person you see is not paying taxes. YOU are.

2. According to a news story released yesterday, economist Gary Shilling’s recent research showed that slightly over half of all Americans – 52.6 percent – now receive significant income from government programs.

Wow. Quite an interesting perspective -- half of us pay taxes and half of us don't.

Not so funny though. But then he puts his usual, funny/sarcastic spin on it with the following ending:

Interesting…funny how those numbers seem to be related somehow.

So, by my figuring, I should be able to list somewhere around 150,000,000 dependants. So, my deductions for dependants should be about $450 billion dollars. Using that figure, I estimate the US Government owes me a refund of about $449+ billion dollars. Stupid? So is the tax code. And so are the politicians that run congress that are at this very moment planning the largest tax increases in the history of the country.

Hold on to your britches. Your pants are about to be ripped off.

;-)

Yeah, that's what I'm kind of expecting too. At least Robin Hood robbed from the rich to give to the poor. Seems like we move closer and closer every year to robbing from anyone that has almost anything to give to those who have less. Now I'm not opposed to having those better off help those less fortunate (in fact, if more people did it on their own, there would be less need for the government to do it), but at some point we get too close to simply splitting everything up equally. And then where is the incentive to work harder, save, start businesses, etc.? And what will happen to our country as a result? When personal incentive to get ahead declines because of government policy and spending, it doesn't usually bode well for the country. Just look at the former Soviet Union and East European countries for examples that aren't pretty.

What's the solution? I'm not sure. But I do think we need to be working on these issues (spending, taxes, etc.) now before they get to the boiling point. But unfortunately the politicians in power (as a group) are too concerned with maintaining that power than with making tough decisions for the good of our country.

Ok, enough ranting about taxes, government policy and the like. What started off as a fun post turned south quickly, didn't it? ;-)

Free Money Finance Carnivals This Week

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

• Festival of Frugality - How I Saved 37% on My Car Repair Bill

• Carnival of Debt Reduction - Debt Payoff Smackdown: Pay Highest Rates First Versus Pay Lowest Balances First

Stop by these carnivals to read some great posts!

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How Much You Should Be Saving

Here's some advice on how much each of us should be socking away in savings from the book The Net Worth Workout: A Powerful Program for a Lifetime of Financial Fitness (see my rating for details):

Generally speaking, I think that a good goal is to be saving 10 percent of your gross income by the time you're thirty years old. If you're a woman, I'd suggest you shoot for 12 percent, because women tend to earn less, live longer, and pay more for products and services like haircuts and drycleaning.

Incidentally, when I say 10 percent (or 12 percent), I'm not including whatever your company may match for your 401(k) plan. Because the company match is "free money" from an outside source, it's not really coming from you. It's best to use the company's match as part of your total savings cushion.

My thoughts on this:

1. As a GENERAL rule, I'm ok with 10% of gross (not net) income. However, I prefer people go to the trouble to estimate the actual expenses of what they are saving for (retirement, college, etc.) and then save accordingly. This may put them at 6%, 9% 12% or 15%. That's ok to me -- it's a better estimate of what they'll actually need.

2. I think it's ok to count 401k money as long as it's yours (in other words, as long as you're vested for the amount in your plan.) What's it matter what the source is, it's still your money isn't it?

3. I've been at the 15-20% level of savings for several years now -- and 10-15% before that. It takes a lot of money to save for something like retirement (as I found out when I set my retirement number) so even while I'm saving a high percentage, I need to.

For more on saving for retirement (the biggest savings expense most of us will have) see these posts:

• How to Maximize Your Retirement Savings

• Save a Little Bit a Day and Become Rich

• Saving Ten Percent of Your Salary for Retirement is Not Enough

• Facts on Retiring Early

Why Your Planner Wants You in Debt

In Money magazine's May issue, they have an article from "The Mole" -- a certified financial planner who gives the truth behind many actions taken by the financial planning community (not everyone, but by enough to make it worth pointing out.) In this piece, he talks about why a planner may NOT want you to pay extra on your mortgage (in this case a second mortgage) even if it was at a fairly high rate of 8% or so. He goes through the various calculations on tax benefits of keeping the mortgage, how much you'd make by paying it off versus investing and so on, but here's the bottom line:

If early payment [mortgage] makes so much sense, why don't my colleagues tell you to do it? Because in most cases, the more money you let your planner manage, the more he earns. There is absolutely no money to be made from your thriftiness.

What? A financial planner working in his own best interest and not that of the client? Shocking! Surprising! Caught me totally off guard! ;-)

As a reminder that it's you who are responsible for your money and that not every "financial planner" can be trusted, check out Thoughts on Financial Advisors.

Would You Rather Be Working in a Different Profession?

Here's an interesting question:

If you had to do it all over again, would you go into a different line of work than you're in now?

I came upon this question while reading Money's May issue when they talked about people shifting careers from one profession to another. Along the way, they shared these stats that really stood out to me:

• 51% of 1,700 executives said they'd likely choose a different field if they could start over.
• 3 in 5 said they anticipate making a major career change.
• 63% of older adults are happy in their careers, the most in any age group.

Wow! I didn't know so many people were unhappy with what they were doing for a living.

This issue impacts you finances in a pretty major way. As I've said before, your career is your most valuable financial asset and anything you do to mess with it will change your finances -- maybe even pretty dramatically. In addition, if you've spent quite some time in one field and want to switch to another, you could be looking at a steep pay cut (especially if the two fields are not related closely and your experience from the first career won't transfer -- and thus won't be rewarded -- to the second career.)

But what about happiness? If you've been in a career for 15 years, let's say, that means you still have 25 years or so of your working life left. If you're miserable, do you really want to spend 40, 50 or 60 hours a week for 25 years doing something you hate? But how much is doing something you love worth -- especially if you've established your lifestyle on your higher-paying current position.

Of course, the win-win would be if you could change your career and keep your income at the same level (or maybe even higher.) That would be a no-brainer, wouldn't it? Maybe so, but what if the new career wasn't really what you expected it to be and you disliked it as well?

See how many issues there are associated with this topic? And I've barely scratched the surface.

For me, I don't think I'd make a change. I love what I do, I love the industry I'm in and I love the company I work for. It's a great place to be and I'm blessed for it as I know this is an unusual situation compared to what most people think about their jobs.

So what about you? Would you like to switch careers? Are you happy in your current field/job? What are you doing about it?

How to Overspend on a Six-Digit Income

Here's another example of the fact that it's not what you make that determines your financial success -- it's what you spend. Said another way, even if you make $100,000 a year, if you spend $110,000 a year you're still going backwards financially.

This story from the LA Times highlights how one couple is headed in the wrong direction financially despite making $100,000 a year. The details:

The Newlands look like misers, but their finances tell a different story. They had racked up $26,000 in credit card debt, despite household income of nearly $100,000 a year after taxes.

The easygoing couple — a wooden sign in their kitchen reads "Relax" — acknowledge they have spent mindlessly on pricey throw pillows, unwatched DVDs of NBC's sitcom "Friends" and a host of other forgettable items.

"We've squandered our money on a lot of frivolous junk," says Helen, 44, a former accountant.

Eating out has taken a big bite too. Until recently, the family could be found up to twice a day at the Red Lobster, Souplantation, McDonald's or other chain eateries. Their restaurant tab last year was about $8,600.

To help make ends meet, they've chipped away at the equity in their home, which over 14 years has more than tripled in value to $660,000. The Newlands have converted this asset to a spendable reservoir of money through a $50,000 home equity line of credit and a $92,000 second mortgage.

The list goes on and on of bad steps this couple have taken financially and the full piece gives all the gory details. It also provides how a financial planner suggests they get back on track. Not surprisingly, spending less than they earn is at the top of the list.

How to Free Up Cash by Moving

I've covered the issue of moving to save money quite a lot in the past (see these posts for details: More on Moving to Save a Bundle -- How One Couple is Saving a Fortune, Free Money Finance Top 10 Most Hated Posts/Themes: #2 Moving to Save Money, Move, Save Money, Become a Multiple Millionaire -- All in One Step), but this piece from Yahoo takes a bit of a spin on the same concept as it tells how people can free up some significant cash (and often upgrade their housing situation) by moving to another area of the country. Here are examples of how two couples did it:

• Manion had always admired Colorado's friendly people and landscape, and his wife has friends and a brother there. The Manions sold the home they had owned for just seven years for $925,000. They're building a new place in a gated community on three acres of land for $800,000; the extra will go into the kids' 529 college plans.

• Six years later, home prices had tripled. "We thought if don't do it now, we'll never do it," says Kathy Marks. With nothing else lined up, Greg quit his job, and they sold their place in Chula Vista for a profit of nearly $440,000. They paid cash for a 3,700-square-foot home on an acre of land in Oconomowoc, Wis., and also paid off their two cars.

Here are the basic economics of the issue:

1. People purchase a nice/decent home sometime back in the past.

2. Over the years, housing prices skyrocket, making a once "nice" house worth a fortune (think people who bought in California 20 years ago.)

3. They sell the house, move to a less expensive state, and get a bigger, newer house with more land for a fraction of the price.

4. They pocket/save/invest the difference.

Not a bad deal if it works out that way. Unfortunately, there's no guaranteed way to replicate this. Still, if you're in this situation (or maybe your parents are), it's an issue to be considered as you do your financial planning for the future.

Update on My Sears Elliptical

I've had several people ask what's going on with my Sears elliptical, so I thought I'd give you all an update. For those of you wondering what I'm talking about, start with Elliptical Wars: My On-going Struggle with Sears and click through the links at the bottom of each post to follow the action.

My last update was on September 19 when things seemed to be going at least "ok." We actually used the machine for a few weeks after that with some success. It worked, we liked it, and all was well. Then it started to rub. The wheel in the back has some sort of rubbing sound going on during use. Then the handles started to separate and "clack" again. So, exhausted from the on-going repairs, calls, waiting for servicemen to show up, etc., we did the most logical thing we could think of -- we went back to our treadmill.

This transition was meant to be for a couple months until we got through the holidays, but Christmas brought on a whole new development in our exercising habits: we got a Playstation 2, our first family gaming system. (It took my son and me four years to convince my wife to let us have one.) Anyway, I found out quickly that I could play the Playstation while walking the treadmill but not while using the elliptical. Besides, the elliptical was rubbing and clacking, so who wanted to use it anyway. Therefore, I moved on -- walking an hour four times a day while leading the Indianapolis Colts to another Super Bowl on Madden 2007. (By the way, playing video games makes your exercise time got by VERY quickly.)

My wife tried to use the elliptical a few more times (she's not the video game type), but the rubbing and clacking was just too much. She put it on her list to call Sears, but it was basketball season for my son, we were leading a class at church, and on and on -- basically, we just didn't have time to follow-up.

At this point, I'm not sure what we'll do. The machine doesn't work, but at some point we just need to move on. I still will never buy any exercise equipment at Sears (or anything of value if I can help it -- we've had good luck with Kenmore and Craftsman stuff in the past, but do I want to give my business to a company that doesn't take care of its customer? Not really.) And I've learned my lesson -- to always (I usually do this) consult Consumer reports before making a big purchase and buy for value (where price and quality meet) versus just for price.

M.B.A.s Don't Prepare Managers for Real-Life Challenges

Yeah, that headline is a real shocker, isn't it? Not if you have your MBA. If you do have the degree, you know that the education itself is much less valuable in the "real-world" than the experience you get when working.

I'll give more of my thoughts on this issue in a bit, but for now let's check out what CareerJournal says about the MBA and how it prepares people for real-life challenges:

An M.B.A. provides the strong general education that an executive needs but it doesn't teach the skills needed in the day-to-day operation of a business, according to a survey of international executives.

Only 20% of the executives surveyed said that an M.B.A. prepares people to deal with the real-life challenges that a manager must face, according to the survey of 133 top executives at firms in the U.S., U.K., France and Germany by Egon Zehnder International, an executive search firm. Among the executives surveyed, 40% hold an M.B.A. themselves.

If I had taken this survey, I would have been with the 80% who said an MBA doesn't prepare people very well for real-world challenges. In fact, here are my overall feelings about an MBA:

1. I have an MBA and am glad I do. It has made a tremendous difference in my net worth through the years. I always say that 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. An MBA has been a key part of success for me in this area.

2. I learned a lot while getting my education, but not much of it has been used in my almost 20 years of work experience since then. Yes, I learned statistics, corporate finance, operations and the like, but those where just "book learning" principles.

3. When I got into the working world, I learned MUCH more about business and the various disciplines than I did in school. Most importantly, I learned the difference between the way business was supposed to work (which is what they teach when you get your MBA) and the way it really works. And it's a huge difference.

4. The most valuable part of my MBA education was learning extra skills outside the classroom -- working with other highly-motivated people to accomplish a common task (without killing each other), managing my time to complete what seemed like an overwhelming list of tasks, and so on. These skills have served me well throughout my career.

5. The most valuable part (employment-wise) of an MBA to me has been that it opened doors for me that would have never been opened otherwise. It gave my career a big kick-start from the beginning and I think that's what it does for most people. Then, after time, the MBA becomes less and less valuable as a person's experience becomes more and more valuable. The MBA was necessary to get the person where she wanted to be initially, and after that, it's her ability that allows her to succeed or fail.

The Biggest Financial Issue in Retirement: Healthcare

The costs of healthcare continue to skyrocket with no end in sight, and it appears that this one issue is starting to dominate retirement planning and savings strategies. Here's the scope of the issue from Yahoo:

Since 2002, Fidelity Investments has estimated what the average person starting retirement will need to pay for healthcare costs. This year, the average amount for a couple, both age 65, is $215,000, up 7.5 percent from $200,000 last year. That assumes they will not have health coverage provided by a former employer.

A couple who earned $60,000 a year before retiring can expect to devote 27 percent of their Social Security benefits to health care this year, and as much as 50 percent 16 to 18 years from now, according to Fidelity's estimates.

Yes, healthcare costs are large and growing. It's almost amazing to watch -- there seems to be no hope of them slowing in the foreseeable future and they've already been increasing rapidly for years. Here's how the $215,000 will be spent:

• Medicare Part B and D premiums, which account for 32 percent of the total
• Medicare co-payments, deductibles, co-insurance and other cost-sharing items, which account for 35 percent
• Prescription drugs, which account for 33 percent

And just in case you were wondering, these estimates don't include the cost of long-term care. Tack that on to this bill and it can jump dramatically.

So, what's a person to do? Quite simply, it means most of us will need to raise the amount we're saving for retirement. Instead of planning to save enough to cover 70-80% of pre-retirement living costs, we may need to up that to 90-100% of costs. Or you can do what I did when I set my retirement number and that's to do an estimate of what you think you'll need in retirement expense by expense (not just taking a percentage of your current expenses) and plan from there. Just be sure you factor in the rising costs of healthcare and set the number accordingly.

Don't Count on an Inheritance to Get Rich

Here's an interesting piece from MoneyCentral on surviving the parent/kid squeeze. It deals with the financial issues associated with trying to take care of parents as well as adult children who need help. It's kind of scary to be honest -- makes you want to talk to your parents about their financial plans and teach your kids all you can about handling money. Otherwise, your finances might be impacted dramatically.

But the part that really caught my attention was some information on inheritance. In particular, this statement:

The median inheritance was $37,700. About 1% of those surveyed received an inheritance greater than $1 million, and 5% inherited between $250,000 and $1 million.

Wow.

When you think of it, this isn't that much of a surprise. After all, most people have low net worths, so as a result they'll have low inheritances to pass along. That said, I have always thought of an inheritance as being a big number -- one that if it didn't make the receiver wealthy at least made him comfortable. Now I find out that a lifetime's worth of savings may buy the receiver a really nice car and that's it. Yikes!

So what's the issue? Many people I know seem to think they'll "have it made" when (fill in the blank -- parents, aunt and uncle, grandparents, etc.) leave them an inheritance. Granted, some of these people know that the amount will be large, but I think many are simply assuming they will reap a windfall when someone passes away. Not only is this a morbid thought (waiting/hoping for someone to die) but it seems unrealistic for the average person.

In addition, as people live longer, they'll be spending more and more of their own money which I expect to make inheritances drop as a result. Worse yet, they'll outlive their assets and have to depend on their children for support. So for many, a negative inheritance is what they'll get.

My point in all of this? If a significant part of your financial plan is built on some sort of inheritance that may or may not ever materialize, I suggest you make alternative plans. Otherwise, you may be the one living off of support from your children.

What to Do with Surplus 529 College Savings

Here's a problem most people would love to have: they saved TOO MUCH for their child's college education (because the daughter got an unexpected scholarship.) So, how do you deal with this? Is the money stuck in the account or will the parent be forced to take a big penalty when she withdraws it? Well, there is a good option:

Typically, the earnings portion of outright withdrawals not used for education expenses is taxed as income and subject to a 10% penalty as well. Some states would also want to recapture the taxes that would have been paid on the deducted contributions. But if Fox changes the beneficiary to one of Katie's sisters, there is no tax or penalty on the transfer because the new beneficiary is a member of the previous beneficiary's family. (The family tie must be between beneficiaries, not the account holder and the new beneficiary.)

We have a 529 for each of our kids and this strategy could be part of our plan. If our son doesn't need all of his money, we could shift it to our daughter. Likewise, if she doesn't need all of her savings, we could shift it to him. That's a long way off at this point, but it's certainly something that I've considered.

So, what would we do if we had more money than both kids needed? I think we'd simply thank God and worry about the penalties we'd have to pay later. ;-)

For more thoughts on saving on and for college, see Best of Free Money Finance: College and Education Posts.

How the Government Spends Our Money

I found this article from MoneyCentral to be very interesting. It details how the federal government spends our tax dollars. The summary:

This year the federal government expects a haul of about $2.7 trillion. About 70% of the annual budget pays for commitments already incurred -- everything from Social Security benefits to interest on the national debt. Neither President Bush nor Congress has much say over that.

Here's how that 70% is spent:

• More than 20% of the total budget is used to pay Social Security benefits to retirees.
• 15% pays the tab for Medicare health benefits.
• 7% goes for Medicaid
• 3% for veterans' benefits
• 1.3% for supplemental security income used to assist the aged, disabled and blind.
• All government payments to individuals, including aid to poor families with children (welfare, which accounts for about 1% of the budget), food stamps (about 1.3%), farm subsidies (1%) and a variety of other government assistance and benefit programs, amount to about 58% of the budget. That's twice the share of the budget such payments claimed 40 years ago. And the percentage continues to climb, giving those pushing reform of such entitlement programs a powerful argument.
• Interest on the debt claims about 10% of the budget.

Now, how the 30% discretionary spending is allocated:

• About two-thirds of this spending (20% of the total budget) pays for the tanks, jets, ships, missiles, rifles and other paraphernalia of defense, not to mention the salaries of our country's soldiers, sailors, airmen and Marines.

• The Department of Homeland Security claims about 1.5% of the budget.

• The last 8.5% of Uncle Sam's budget pays for everything else: transportation (federal highways and bridges, support for Amtrak, funds to help states with other roads, bridges, railroads, airports and so on); science and medical research; food and drug safety; guarding the environment; the Strategic Petroleum Reserve; export promotion and import protections; space exploration; air traffic control; the FBI, the Drug Enforcement Administration and the rest of the Justice Department; federal education funding; and an alphabet soup of federal agencies tasked with helping to keep Americans safe, healthy and, sad to say, honest -- from the CPSC (Consumer Product Safety Commission) to the NLRB (National Labor Relations Board) to the SEC (Securities and Exchange Commission).

A few thoughts from me:

1. Wow, we have a lot committed in non-discretionary spending. I knew it was high, but I thought it was more like 40% -- not 70%. Something's going to have to be done about this or our budget is going to be in a whole lot of trouble.

2. Interest at 10%, huh? That's a killer for me. As a believer in having no debt, paying 10% in interest is a killer. If that was happening to me personally, I'd make some radical changes in my lifestyle to get my budget under control. Another thought: I bet the government wastes 10% of the budget on needless over-spending (paying $100 for something that only costs $50), bureaucracy, and simple mis-management. If we could cut that in half and keep our spending under control, we could eliminate our interest costs.

3. Don't get me started on Social Security.

4. The piece notes that we've spent more on defense in past years than we are now, and to me, providing for the national defense is one of the legitimate reasons for a federal government. Of course we all have different opinions on how much to spend on defense, but somehow I don't mind paying for something that's going to keep me alive. Then again, I'm sure a lot of waste could be found here too -- probably more in equipment than in personnel. I don't think anyone's getting rich by serving in our military.

5. All the "good stuff" gets only 8.5% of our spending. It's still a huge number (any percentage of $2.7 trillion is a big number), but still -- wouldn't you expect it to be more? I know I did.

And just to close on an up note -- all of us give four months of our lives every year to pay for this stuff. Very encouraging, huh? ;-)

Why 529s Make Sense

Here's another piece from Kiplinger's on why 529 college savings plans make sense. Their thoughts:

Two new tax laws make 529s much more attractive than custodial accounts. The 529 earnings are now permanently tax-free when used for college costs. And a change in the kiddie-tax law requires parents to pay taxes on custodial account earnings at their own tax rate until their children reach age 18 (previously, earnings had been taxed at the child's lower rate after they turned 14). Plus, more states continue to offer income-tax deductions for 529 contributions.

And new financial aid rules give 529s a clear edge: Custodial accounts are considered to be the child's assets, and children are expected to contribute 35% of their assets for college costs (the number shrinks to 20% next year); 529s are parental assets and only tapped at 5.6% in the financial aid formulas.

Because of these new rules, it's better to invest the bulk of your college savings in a 529 plan.

That's what we're doing -- putting the bulk of our college savings in our 529 plan. And even though we've been contributing to Coverdells for years, our 529s have almost as much money in them as the Coverdells. Why? Because the Coverdells are limited to $2,000 contributions a year while the 529s  have much, much higher contribution limits (more than what most people will save for college in total.)

For more thoughts on saving on and for college, see Best of Free Money Finance: College and Education Posts.

Publix Turns Up the Heat to Prove Store Brands are as Good as National Brands

I'm a big user of store and generic brands and have even done my own series of price wars on this blog comparing them to national brands (see Save Big Money by Using Generic/Store Brands -- Even I Didn't Know the Savings Were This Big!!! and Health and Beauty Aids: Walmart versus Costco, Kirkland Brand versus Equate Brand -- Which is the Best Deal? for details.) The bottom line is that you can save a TON of money using store and generic brands and their quality/effectiveness is almost always just as good as those of the national brands. (Food varies more than non-food items, but there's usually no risk to trying them as most retailers have a "you'll like it or your money back" guarantee on their store brand.) And in many cases, the store brand is the exact same product as the national brand!

Well, now a retailer is willing to prove that their products are just as good as the national brands. Publix, a grocery store chain in Florida, is fielding a unique promotion for its store brands. The details:

Publix Super Markets Inc. has the packaged-goods industry chattering about the launch of an unusual national brand comparison challenge.

Beginning April 26, the Lakeland-based chain will offer a buy-one-get-one-free deal for selected national brand products matched with the Publix label version of the same product.

The first week's products will include a 64-ounce container of Welch's grape juice, an 18.2-ounce box of Kellogg's Raisin Bran Crunch and 12-ounce package of Thomas' English Muffins. Buy one of them during the promotion and Publix will toss in its version free.

Wow. The shopper gets a great deal and Publix gets the chance to convert people to its brand.

And why would people want to convert? How about to pay less for the same quality products:

It's an attempt to convince shoppers Publix brands are as good as popular national brand rivals sold on the same shelf at a 20 to 30 percent higher price.

Assuming you spend $400 a month on food (which is what we do), switching to store brands could save you around $1,000 a year!

I also found this interesting:

Grocers typically get up to 20 percent of their business from their own store brands, some of which are made by the same manufacturer but more often are not. In recent years most grocers stepped up the quality and promotion of their own private-label products as part of their chain's overall brand image. It's a trend some experts think corrodes the future of national brands.

So, do you think this will work? I do. Why? First of all, I believe store brands are usually just as good and national brands. Then, there's this:

Publix tested the promotion last spring in 100 stores in Alabama and in Hillsborough and Pasco counties. Enough shoppers switched to the Publix brand for the chain to expand the offer this spring to all 900 stores.

So they know it will work. And that's because people can save a bundle of money while getting items that are as good in quality as the national brands.

Very interesting indeed.

How to Get Rich Quick

Here's a comment left recently on my post titled Turn $1 a Day into $67,815:

I don't have that time to wait. I need to know the fastest and simplest way to turn 1dollar into a million dollars in a year.

Ha! Isn't this exactly the way many American's are thinking? They want to be rich NOW! They want to be extremely wealthy with little investment and minimal time. This person was brave (or stupid) enough to say it, but many others are thinking the same thing.

So, want me to tell you how to get rich quick? Here's the answer:

Get extremely lucky.

Yep, that's the only way I know to get rich quick with very little investment. Win the lottery. Discover oil on your property. Inherit the money from your long-lost rich uncle. I could go on and on, but you get the idea. There's no easy, simple, guaranteed way to get rich quickly with little investment other than extreme luck.

Even people who may seem to get rich quick usually only get rich after a lot of time and effort. A man who comes up with a product that becomes an "overnight sensation" probably worked years and had several failures to come up with the one winner that made him rich. A first-time professional athlete who signs a multi-million dollar contract has worked for years to develop his skills and abilities. Same goes for a singer who has a hit record.

So how can the average person like you and me get rich quick? We can't, not without extreme luck. But we can get rich over time. How? All it takes are three simple steps.

How to Balance Risk and Return in Your Portfolio Asset Allocation

Here's an article courtesy of Marotta Asset Management on how to choose the asset allocation of your investment portfolio:

Portfolio construction begins with the most basic allocation between investments that offer a greater chance of appreciation (stocks) and those that provide portfolio stability (bonds). Decisions made at this level are the most important in determining how well-behaved your portfolio returns will be.

It's been said that investing is all about the balance between greed and fear. Many die-hard investors would agree but believe that instead of a balance between the two, there is only one right answer: greed. Fear, to them, is a weakness of those who lack courage and fortitude. Greed, they argue, pays off over the long term. If on average, US stocks provide a 10-12% return, why not invest everything in aggressive growth stocks and earn even more?

The problem with this approach is that in the last 65 years the S&P 500 has only had three years where the returns have been between 10% and 12%. They tend to either be up 30% or down 10%. It may average 10% but the markets are rarely that well-behaved. So for those counting on nice 10-12% percent returns of the S&P 500, the ride will be extremely bumpy making it difficult to achieve your projections.

How much of your portfolio should you allocate to stocks and how much to bonds?

Many advisors try to determine the right asset class mix by assessing client attitudes toward risk. Clients are often asked to complete a generic questionnaire which is supposed to assess their risk tolerance. Using the client's reported risk tolerance, the advisor then develops the appropriate asset allocation. However, more often than not, the risk tolerance surveys end up describing the financial personality investors wished they had more than it describes how they should be invested.

Some advisors simply create portfolios by asking the question: "How much anguish and worry can my client endure?" Then, they create a portfolio which pushes their client to the limits of their endurance.

Basing your asset allocation on risk tolerance is not the best way to reach your financial goals. For example, assume you are trying to get to an appointment on time. You generally don't ask about your "speed tolerance" and then drive as fast as you can tolerate. Driving at your fastest speed to your appointment is usually not the safest way to guarantee that you arrive at your appointment in one piece. Most likely, you drive somewhere under your speed tolerance and enjoy a smoother ride. And while you don't drive at your fastest possible speed, neither do you drive five miles an hour because, most likely, you won't reach your destination on time at that speed.

We use a different methodology. In determining the appropriate asset allocation, the important value is neither greed nor fear; the important value is reaching the client's stated goals. The battle between greed and fear gives way to the larger task of doing what it takes to meet a client's goals and reach their destination in one piece. This method of portfolio construction does not depend on an investor's risk tolerance.

There are a handful of other tools advisors use to evaluate the suitability of an investment strategy to an individual client. Some advisors recommend the same portfolio allocation of 60% appreciating stocks and 40% stable bonds no matter what the client's specific situation. This conservative allocation does balance volatility and return nicely. But while it may provide an interesting return, it is certainly is not tailored to meet a specific family's financial goals.

Another traditional rule of thumb is to take 100 minus your age and to allocate that amount to appreciating stocks and put the remainder in stable fixed income investments. This rule would suggest that a 50 year old be invested half in stocks and half in bonds. As longevity has increased, however, this formula has been adjusted.

Today, more growth is required to help portfolios support increasing longevity and longer years spent in retirement. The rule of thumb used by many advisors is to invest 120 minus your age in appreciating stocks and the remainder in stable fixed income investments. Now, it is typical for a 70-year-old to have a portfolio of half stocks and half bonds.

While these age appropriate recommendations are not very sophisticated, they do provide an important rule: A couple's investments should grow more conservative over time. Allowing your portfolio to grow more conservative may help you reach your financial goals.

Part of tailoring an asset allocation to a client's specific needs is to first to determine their individual spending requirements. The percentage that can be put in appreciating stocks can be computed by determining the amount of a couple's assets that will be spent in the next five to seven years. As an example, a couple at age 65 should limit their spending to 4.36% of their portfolio's value. If they invest assets in stability sufficient to cover the next six years of spending they would want to invest 27% of their assets in stable fixed income investments. Since the remaining 73% of their assets have a time horizon of longer than six years they could be invested in appreciating stocks. As a couple spends down their portfolio, they withdraw a larger percentage each year and would want to put a greater percentage in fixed income to cover the next six years.

The mix of stability and appreciation can be further adjusted based on other specific situations. If a retired couple has a frugal lifestyle compared to their net worth, they will not need all of their assets during their retirement. In this case much of their portfolio is being managed for the next generation. Since the time horizon is longer, an even greater percentage can be invested for appreciation. For example, if a couple's withdrawal rate is as low as 2% of their net worth then as little as 20% in stability would cover the next decade of withdrawals.

Even when creating a very aggressive portfolio, having some fixed income investments can actually boost returns. Stable investments provide some cash on the sidelines. Having cash to buy back into stocks after a market correction both boost as well as smoothes your investment returns. Because of the effect of compounding, smoother returns produce better returns.

The analysis for optimizing the mix of stability and appreciation depends on market assumptions, but needless to say that neither an all stock nor all bond portfolio is optimal. Combining the expected returns and stability of various mixes with your specific financial goals is what produces a personalized investment policy statement.

The Bible Will Make You Rich

Yes, my titles are getting a bit over the top. But it's a way I humor myself. ;-)

That said, I believe that the Bible will make you rich. Why? Because it's full of financial advice that, if followed, can't help but make you wealthy.

What sort of advice am I talking about? Things like:

• Spending less than you earn
• Budgeting and keeping track of your money
• Saving over the long term
• Limiting debt
• Investing wisely
• Acquiring knowledge (we'd call this "getting an education")

Sound familiar? They should -- these are the things I talk about here every day. They are the simple financial principles that anyone can follow but that are very powerful. And if they are followed over a long period of time, they can't help but make you rich.

See, I told you the Bible would make you rich. ;-)

Something Money Doesn't Buy: Life

Here's a reminder that life is about much more than money. It's from the headlines a week or so ago:

Asia's richest woman, Nina Wang, has died of an unspecified illness after reports she had been battling cancer, leaving unanswered questions over her estimated $4.2 billion fortune.

This woman had billions of dollars, but do you think she'd have given it all away (or at least most of it) for a year more on earth? Or maybe even a few days?

When I saw this I just thought of how fleeting life is and while money is an important topic, there are certainly things that are worth much more.

Thus ends my philosophical post for the day. ;-)

Posts of the Week -- April 20

Here is a list of my favorite posts this week:

• Should You Pay Off Your Home or Not?

• Make the Most of Your Career by Getting a Compensation Agreement in Writing (I Did and It Made Me Five Figures)

• How Much Money Does It Take to Be Rich?

• Debt Payoff Smackdown: Pay Highest Rates First Versus Pay Lowest Balances First

• Why Index Funds Deliver Such Great Returns

• Why Even Dave Ramsey Needs to Consider His Credit Score

If you're a regular reader of Free Money Finance and enjoy the content here, would you do me a favor and tell three (or four) friends? I sure would appreciate it! And if you're not a regular reader, what are you waiting for? You can subscribe easily to Free Money Finance by using this link.

Have a great weekend!
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• Blue Cash from American Express - I recommend it because it made me almost $500 last year

• Get a FREE 30 day trial of Mvelopes Personal - I recommend it because my readers like it.

• You Need A Budget: the simple, effective, powerful budgeting system - I recommend it because my readers like it.

• Financial Web - Lots of good information here!

One Year Ago This Week -- April 20

Here are some posts worth re-reading from one year ago this week:

• What to Do with Your 401k Money: Roll It Over into an IRA

• Five Keys to Developing a Successful Budget

• How to Teach Your Kids about Money

• A Great Alternative to Quicken and Microsoft Money, Part 2

• Is a Career Change Right for You?

• The Richest Man in Babylon: Save a Portion of All You Make

• Money Saving Tip: Select Your Wedding Gift Early

• Your Most Valuable Asset

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

FAQs on 529 College Savings Plans and Why 529s are a Good Deal

As many of you know, I recently opened two 529 college savings plans for my kids. After doing a good amount of research (and, yes, the issues surrounding 529s are confusing), I found the best plans for us and took the plunge.

Recently, I found a series of great 529 articles at Kiplinger and thought I'd share one per day with you -- so we could all learn about this great option for saving for college.

Today, I want to highlight a piece that lists 529 plan FAQs. It contains, as you can imagine, a series of answers to the most-asked questions regarding 529s. If you're in the initial stages of educating yourself about 529s, this is a great place to start.

The one question that stood out to me was the first one that details all the benefits of 529s. A summary:

• Withdrawals for qualifying education expenses are tax-free. Also, 529 plans are treated as parental assets when it comes to financial aid. (Parents are expected to kick in just 5.6% of their assets while students are expected to contribute 20%.)

• They're simple. Choose an investment option and make contributions and the plan does the rest. Sit back while the state or a third party, such as an investment firm, manages your funds.

• Contributions may be state-tax deductible. Thirty-one states and the District of Columbia allow you to deduct some or all of your contributions. Rules vary, so check with your state for more details.

• They're portable. Depending on the state, you can choose from a number of different investing options. You also can switch investment tracks within the plan once a year. And if you don't like your state's plan, shop around. Plans are open to residents and nonresidents alike. You also can roll your savings into another state's plan without penalty.

• There are no set annual contribution or income limits. Contribution limits vary by state, and some states do not limit contributions at all -- a good option for grandparents looking to transfer assets through estate planning.

All are great reasons to open a 529 -- and reasons that made me finally take the plunge.

The piece also gives this advice:

Don't think of Coverdell ESAs and Section 529 plans as mutually exclusive. If you have the money, consider funding both. ESAs also can be spent on private school tuition or other qualified educational expenses.

Personally, we fund both each year. Coverdells only allow $2,000 per child per year, so they won't accumulate enough to pay for a good chunk of college, but every little bit helps.

For more thoughts on saving on and for college, see Best of Free Money Finance: College and Education Posts.

$10k Challenge: Even More Ways to Make More Money

I'm on a quest to raise an additional $10k this year in income -- extra income outside my regular job. The numbers I ran show that making this amount and socking it away year after year can yield quite a sizeable next egg.

I already have quite a sizeable list of money making ideas, but I'm going to add several more in this post thanks to a piece I saw on MoneyCentral that lists a few ways one woman makes some extra money:

• I earned $35 for watching a porn film. I sell my blood, a couple of teaspoons at a time, to medical researchers. I get a monthly rent credit for being the go-to gal in my apartment building.

• An acquaintance gave me $120 to watch her dog for four days. I get $10 to $15 an hour to care for children who go to bed 90 minutes after I arrive. I was paid to buy $179 sunglasses and then tattle on the sales clerk for not doing his job right.

• Medical testing, child care, dog-sitting, mystery shopping and apartment management helped keep me afloat last year. This year I'm scaling back on the side jobs, but I haven't given them up entirely. Extra income is always welcome.

Wow! You'd think that with all this going on this woman would be quite well off. Then again, if she was well off she probably wouldn't be doing many of these things.

Ok, it's your turn to add to the list. Are there any ways you're making extra income on the side that the rest of us should know about? ;-)

Save Money When Selling Your Home

Here's a simple yet very effective money saving tip:

When you sell your home, ask your real estate agent to take a reduced commission.

SmartMoney magazine says that with the current slowing in housing sales, real estate agents are much more willing to reduce their fees a bit. The details:

As more brokers compete for sales in a slowing real estate market, savvy homeowners can save thousands by negotiating their commissions. "Commissions are becoming more negotiable than used to be the case," White says. He chalks it up to several factors, including more competition from discount and a-la-carte brokers, which offer less comprehensive services than full-service brokers, but charge discounted sales commissions or offer buyers rebates upon closing. And then there's more consumer awareness of the market. Thanks to web sites like Zillow.com, anyone with an Internet connection can find out what homes are for sale or recently sold in a given area — information once only available to real estate agents.

This can add up to some big bucks. If you're selling a $200,000 home and would normally pay a 6% commission but can get it to 4.5% (the example used in the SmartMoney article), you'll save $3,000. Not bad, huh?

How to Save Big Money on Housing Costs in Expensive Areas of the Country

Here's a comment left on my post titled How to Eliminate Housing Costs:

I grew up not far from the insanely expensive Palo Alto. I house sat for 6 months in college (friend went to Europe for 6 months), and the rest of the time lived with roommates to cut costs way down. I always roll my eyes though at pathetic attempts to live on minimum wage (experiments) where they move into the crappiest apartment on the bad side of town. I rented a large house with roommates on the good side of town - had a room to myself even. But it cost 1/2 what a studio apartment would have cost me to live alone. Just another strategy to save money in a pricey area. Doesn't have to be forever, but gets you on your feet.

Anyway, with the roomies I ended up doing lots of house-sitting gigs for money as well - weeks/weekends. But yes it helps to get creative in expensive areas.

Yes, if you're willing to be flexible and creative, this is a great way to save some money.

When I got out of college, I moved to Cincinnati which was not the most expensive place in the world. However, I wanted to live in an expensive area of the city where the nightlife was active (I was young then -- I'd NEVER live there now.) Anyway, I was able to do this by getting a couple of roommates -- one guy I knew from school/work and a friend of his. We had a great place in a great area of town for less than what I would have paid for an average apartment anywhere else.

Maybe some of you reading this simply need to get creative to save a huge amount on your housing costs. Anyone else doing something unusual to save a bundle?

Star Money Articles for the Week of April 16

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

• Blueprint for Financial Prosperity gives a survival guide to homeowner associations.

• Consumerism Commentary details John Bogle and Jeremy Siegel debating index funds.

• AllFinancialMatters says a good FICO score can save you lots of money.

• MightyBargainHunter suggests you save time and money by packing your lunch.

• Five Cent Nickel tells us why taxes were due on a Tuesday.

• Consumerist lists everything you ever wanted to know about the subprime mortgage meltdown.

• Credit Card News offers some tips on protecting your identity.

• The Quicken Online User Community is giving away five $200 Amazon gift certificates.

Enjoy!

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Free Money Finance is brought to you by (note: all revenue from this site is given to charity):

• Blue Cash from American Express - I recommend it because it made me almost $500 last year

• Get a FREE 30 day trial of Mvelopes Personal - I recommend it because my readers like it

• You Need A Budget: the simple, effective, powerful budgeting system - I recommend it because my readers like it

• Financial Web - Lots of good information here!

Americans Deluded about Retirement Prospects

Every once in awhile I run into an article like this one from Yahoo that shows there is a vast difference between what people think their retirement will be like and what their current savings says it will be like. The summary:

More than seven in 10 Americans are either "very confident" or "somewhat confident" they will have enough money to live comfortably throughout their retirement years.

Yet almost half of workers have less than $25,000 -- excluding their primary residence or any defined-benefit pension plans -- salted away for the so-called golden years, according to the 2007 Retirement Confidence Survey released this week by the Employee Benefit Research Institute (EBRI).

I'm not surprised. There seems to be a large gap between expectations and reality for Americans on several financial fronts: debt, savings, investing, college savings and now retirement.

The piece then goes on to give some suggestions on how people should prepare for retirement including these:

1. Crunch the numbers

2. Calculate life expectancy

3. Calculate health expenses in retirement

4. Don't succumb to advertising that promotes spending

I've done all of these. In particular, I set my retirement number a few months ago and continue to save every month towards reaching it. It certainly takes a lot of money to retire the way most people would like, so if you've been ignoring this important part of financial planning, I suggest you get up to speed on your savings options, make a plan, and get going. You may want to start by reading some of my most popular posts on retirement.

Midwest Airlines: Did They Take Care of Me or Should I Hate Them?

The day after my Easter vacation, I had nightmare trip planned. I was to fly to Nashville, drive two hours for a meeting, drive back, then fly home -- all in one day. This long trip was scheduled to start at 4:30 am and end at 11:45 pm the same night. What a way to come back from vacation, huh?

Well, the first part of the trip went as planned. I made the first flight, drove two hours, had my meeting, and drove back to the Nashville airport. That's when the nightmare began.

It seems that Midwest Airlines had a plane with a flat tire earlier in the day (this is what they told me.) The time it took to repair the tire messed up that plane for the day, throwing off the entire schedule. So when I arrived at 6 pm for my 7:40 pm flight, things were totally screwed up. My flight was now scheduled to leave at 9:45 pm which meant I'd miss my connection. I'd be spending the night in Milwaukee. In the clothes I had worn all day. Nice. Real nice.

Now before I go on (yes, it gets a lot worse), let's review what they could have done to make this situation better. After all, planes do have mechanical troubles and I personally don't want to fly on one that needs repairs, so I'll cut them some slack on the flat tire. What irks me is what they did (or should I say "failed to do?") once the flat tire messed everything up. Here's what they could have done differently:

• They could have called me to tell me of the trouble as soon as they knew of it. They had my number and could have easily contacted me. I could have then made other plans.

• They could have emailed me. If they didn't want to call, how about at least an automated email? They have my email address and I carry a Blackberry, so I would have known about the issue as soon as they sent the message.

• They could have had enough people working the counter to handle the traffic quickly. They had one person handling all the re-booking issues. When I arrived at 6 pm, I was the fifth person in line. By the time I got up to be served, it was 6:45 pm. When I asked her if I could get a flight on another airline, she said she could have done something for me if I had been there before 6:30 pm -- after that time, all the other airlines' flight options were booked or gone. I mentioned (through gritted teeth) that I was there before 6:30 pm -- in plenty of time to get on another flight. She said, "yeah, but I was busy." I was not impressed, as you might imagine. (FYI, I was headed back to Grand Rapids and had lots of options in addition to flying there if they had simply gotten me the information in time. I could fly to either Chicago or Detroit and drive home. But, it was too late for anything.)

• Once the die was cast, they could have made it a bit easier on us. They could have paid for dinner. Did they? No. They could have gotten me into a club of a partner airline so I didn't have to wait for hours in the concourse. I asked if they could do this. No, they couldn't.

The story continues...

So I went to a business services place in the airport and paid $18 for one-hour of internet usage, made some calls, got a BBQ sandwich and chips at the snack bar, then headed to the gate. Then the wait began. Eventually, the plane arrived, we boarded at 10:30 pm and landed in Milwaukee at midnight. They gave us vouchers for a hotel and breakfast the next morning. No, they didn't call the hotel shuttle to be there and pick us up -- we (there were about ten of us in the same situation) had to do that ourselves. So we called, waited some more, then went to the hotel. I got to bed around 1 am. After getting up at 4:30 am in an earlier time zone. The day after my vacation. I was not a happy camper.

I was up at 6 am the next morning and at the airport soon thereafter for my 8:30 am flight to Grand Rapids. I ate my breakfast courtesy of Midwest, then went to the gate. It was not good. All the later flights to Grand Rapids (and flights to many other places) were either delayed or canceled. Why? A big snow storm was moving in to both cities and while it wasn't bad in either of them, it was going to get bad. And it was bad enough now that no one was doing anything.

After a bit of time, all of the other flights to Grand Rapids were canceled and mine was delayed until 11 am (just enough time to let the storm really get there in full force.) I asked if there was a chance that this flight was ever going to take off or if they were going to string us along for hours just to cancel it. Of course, no one at Midwest knew the answer to that as "they" (someone other than the people there) were making the go or no-go decision.

My flight was delayed a couple more times until at 11:30 am when they announce we'd be boarding soon. At 11:35 am they canceled the flight. As you might imagine, I was not impressed.

So, I re-booked on the 6:50 am flight the next day and went back to the hotel where I stayed the previous night. I was able to get some work done in my hotel while 5-6 inches of snow piled up inside, so the day wasn't a total waste. But I was not very comfortable and was, of course, in the same clothes I had left with at 4:30 am the previous day. Yep. It was a blast. ;-)

On the third day of this nightmare, I went to the airport early and was able to get the flight as booked. I arrived home around 8:30 am that day -- exhausted, feeling dirty (I showered each day, but still wore the same clothes), and mentally drained. It was one of the worst trips I've ever been on.

Now certainly it wasn't Midwest's fault about the weather. Maybe I could blame them for how they announced the flight changes and led us on for a few hours, but I'm not sure they could have done much other than had agents who were a bit friendlier (two were while one was not helpful in the least.) So I'll give them a pass on the second day's problem.

That said, if they had handled the flat tire situation correctly in the first place, I would have been home when the big storm hit. So while they didn't cause the events of the second day, their mis-management of day 1 set me up for the events of day two.

So, what did Midwest do to make it right? They gave me one round-trip ticket free for my inconvenience. (They did this the evening we arrived in Milwaukee at midnight.) Was it more than they had to do? Certainly. Obviously, it was better than nothing. Was it more than most airlines would do? Probably. I've never received a free ticket on the few times I've been stranded before. Was it good enough to make me happy? I'm not sure. I'm going to leave that decision to you. Should I be happy with Midwest Airlines for doing the right thing and taking care of its customers or should I be mad at them for putting me through a couple days of agony? Let me know what you think in the comments below.

An Example of How to Save Money by Moving

Here's a comment left on my post titled How to Go Broke on $200,000 a Year that gives a real-life example of how a couple saved a significant amount of money by moving from one location to another:

When we decided to buy a house, a 60-minute commute for my husband vs. a 15-minute commute made about a $200K difference in home costs. And property values are still climbing in our area, rather than being seriously inflated to begin with.

And before someone points out that time is money too, the extra 7.5 hours per week will take almost 14 years to add up to $200K in money at his current salary.

My thoughts:

1. See, I told you it could be done. ;-)

2. Yes, there is a cost in time here and to consider it is a valid point. I actually was able to increase my income and decrease my commute, but that was by moving from one city to another, not moving within a city as this example details.

3. For more of my thoughts on this issue, see my previous posts on moving:

• More on Moving to Save a Bundle -- How One Couple is Saving a Fortune

• Free Money Finance Top 10 Most Hated Posts/Themes: #2 Moving to Save Money

• Move, Save Money, Become a Multiple Millionaire -- All in One Step

Is Earning an Executive M.B.A. Past the Age of 50 Worth It?

Here's a piece from CareerJournal that asks if earning an executive MBA past the age of 50 is worth it. They don't get to a definitive answer, but hint that it is. Here's my opinion:

Can earning an executive MBA past the age of 50 be worth it? Yes. Is it usually? No.

Why do I think this? Because after several years of working, an education gets to be worth less and less and experience counts for more and more. At some point, piling on extra education is not worth much.

Of course, there are exceptions. Sometimes a company mandates that an executive get an advanced degree to progress in the company. If this is the case, then there's a clear benefit to getting an MBA. Or if a person is looking to make a career change, and MBA can help because the work experience in this new field isn't there -- and thus the education is worth more towards getting established at the highest rate possible.

That said, the general rule (in my opinion) is that the longer you work without an MBA, the less it's worth when you get it. Said conversely, the sooner in your career you get your MBA (within a couple years -- I recognize that someone with a year or two of work experience may get more out of an MBA than someone fresh out of undergraduate school), the more it will be worth to you throughout your work career.

And it can be worth a LOT. Check out what an MBA did for me.

Pet Financial Horror Story

Here's a pet financial horror story a friend told me a month or so ago:

"A friend of mine bought a boxer at a local pet shop. The dog was a bit sick and my friend thought he just had kennel cough. So when he took him to the vet, he was shocked to find the dog had pneumonia and an infection. $4,000 later, the dog's ok. He went back to the shop to try and get part of this paid for, but they refused."

A few thoughts here:

1. You need to be careful where you get your pet. Obviously, you want to buy from a company/person who will stand behind the purchase should anything go wrong.

2. Take the dog to a vet as soon as you get him. The vet can then verify if the pet had any sickness prior to you owning it and can put it in writing. This can be very useful in the case that you need to take legal action.

3. If the shop won't back up the sale, consider getting a lawyer. Of course you'll need to do a cost/benefit analysis, but for $4k, it's probably worth it.

4. As I always say, you need to consider the costs associated with a pet before getting one. In this case, the problem could have just as easily happened a year after the friend had the pet -- then he would be totally responsible for it (like he may be now.) That's a big chunk of change.

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 Personal Finance - Five Steps to Get Your Home in Shape for Summer

• Carnival of Debt Reduction - Don't Pour Your Money Down a Relative's Drain

Stop by these carnivals to read some great posts!

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