Free Money Finance

Money To-Do Calendar: November

The great personal finance book Grow Your Money!: 101 Easy Tips to Plan, Save, and Invest ends with a list of what financial steps we should take each month. They list the November steps as follows:

• Make sure enough money has been withheld to pay taxes.

• Plan your holiday spending in advance.

My take on these:

1. I actually look over my projected income (and thus taxes owed) as part of my tax prep in March/April. Based on my CPA's recommendations, I make any adjustments at this point to make sure I have enough (but not too much) tax withheld.

2. We do some holiday shopping during the year (as we see things people like -- though I must admit it's often hard not to give them their gifts early) but our actual budget is set at the end of December the previous year as we develop our budget. That said, we fine tune it in early November and if we decide to go over a bit, we have the financial flexibility to do so. It's not like we're going to spend $1 million on gifts anyway...

Suggested 401k Reform

The following is an excerpt from America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need, courtesy of FT Press, imprint of Pearson. Originally published in "America, Welcome to the Poorhouse." I don't agree with everything that's written in this book (you'll be able to see pretty clearly where we differ -- on many points in this particular piece), but I thought that this excerpt would certainly get the conversaion going. Hold on to your hats!!!!!

The bad news is that currently most Americans can’t afford to retire from a 401(k) plan. The good news is that there is a new administration in the White House and President Obama seems to understand that most Americans are under severe financial stress. On January 30, 2009, he announced the initiation of a Middle Class Task Force, headed up by Vice President Joe Biden, to address the financial stress facing most Americans, with its five goals including “protecting retirement security.” We need to communicate to Vice President Biden that the task before us isn’t simply “protecting retirement security” but to boost retirement savings so that people can actually afford to retire.

The reform that we need:

401(k) Security Act: “The 9% Solution”

1. Coverage mandate. Every employer with ten or more employees who doesn’t offer a regular pension plan—or whose plan is frozen to new hires—must offer a 401(k) plan and contribute the equivalent of 9% of pay as of 2010. If the 9% contribution rate is challenging in these recessionary times, then we should take a phase-in approach similar to Australia’s: start at 5% in 2010, increasing to 7% in 2016 and 9% by 2020.

2. Employees working in companies with fewer than ten employees would be enrolled in a Universal 401(k) featuring a government contribution. A new entity, a clearinghouse akin to the Federal Thrift Savings Plan (TSP), which manages very low-cost 401(k)-style accounts for three million federal military and civilian personnel, would receive all deposits.

3. Get rid of the low ceiling on 401(k) contributions: The limits are $16,500 for those under age 50, $22,000 for those over age 50 in 2009, indexed to inflation. It makes absolutely no sense to limit how much people can contribute, especially since most of us will have to contribute more to make up for lost time. Baby Boomer Australians can sell a home or another asset and add the proceeds to their accounts; workers over age 60 can make after-tax superannuation contributions of $150,000 a year, or $450,000 over three years.

4. Disclose the necessary employee contribution “co-pay.” Participants must be informed what their contribution rate should be depending on their age when they start to save, based on the new requirements. For example, even with the implementation of the new contribution equal to 9% of salary by employers, individuals who start contributing to their accounts at age 25 need to know they should contribute an additional 4%, another 7% if they start at age 30, another 11.25% at age 35, another 17.25% at age 40, and another 42% at age 50.

5. Employer contributions must start when the employee joins the company, not after one year. Twenty percent of employers surveyed by Vanguard require eligible employees to have one year of service before the employers match contributions to “minimize compensation costs.” This practice could deprive someone who changed jobs every four years of a total of 11 years of investment returns, causing a huge hit to the nest egg.

6. All employer contributions must be in cash, not company stock. As was the case with Enron employees, a stock match carries the risk that the contribution will be worthless if the company goes out of business. While the Pension Protection Act has required employers to allow employees with company stock in the plan to gradually diversify out of it, a recent Vanguard study of its clients showed that 8% of employees had more than 80% of their account balances in company stock, revealing a lack of understanding of the risks of not diversifying.

7. All employers must offer a Roth 401(k) option and the ability to transfer current balances to a Roth account.

8. Get rid of discrimination testing: If highly paid people have waited too long to start saving, they should have the opportunity to save.

9. Prohibit access to retiree balances until retirement: At the same time we want employers to contribute more to nest eggs, we want to limit opportunities for employees to “shoot themselves in the foot” by tapping into vested balances before it’s time to retire. There should be no loans, hardship withdrawals, or ability to “cash out” when changing jobs. Nearly half of job changers surveyed by Hewitt Associates cashed out of their retirement plans rather than leaving the balances in the old plan or “rolling them over” to an IRA or new plan.

10. All plans must include an index fund option.

11. All plans must include a target fund option, which gradually shifts from stocks to fixed income investments as the participants get closer to retirement. This should also be the “default” investment if the employee prefers not to choose an investment. Otherwise a participant may make an unwise decision to have a too high allocation in stocks or fixed income investments depending on his or her investment time horizon.

12. Employers must communicate to workers that they cannot afford to retire unless they have accumulated 10 times their salary in their accounts.

13. Workers who have accumulated enough should be encouraged to invest in a managed payout account rather than an annuity.

Action Plan: First, we need to send a message to Vice President Biden, who heads up the Middle Class Task Force, that the fix that’s needed is not simply automatically enrolling Americans in 401(k) plans or IRAs. Americans must deliver the message that only if employers are forced to kick in higher contributions will most folks be able to afford to retire. Along with contacting your own congressperson, go to the contact page on the White House website (http:/ /www. whitehouse. gov/ contact/) and submit an email asking Vice President Biden to support the Security Act mandating 9% employer contributions to 401(k) accounts. Here is the URL to the page on my company’s website that describes the proposed legislation that can be cut and pasted into your email: http:/ / www. retirement-solutions. us/ 401k-nightmare. htm.

Second, contact Rep. George Miller (D-CA), who is chairman of the Health, Education and Labor Committee, which oversees pensions, to seek his support: http:/ /georgemiller. house. gov/ contactus/ 2007/ 08post_1. html.

Third, we also need to send a message to AARP that the advocacy group for retirees needs to do more for would-be retirees who are currently can’t-be retirees. When I spoke with a spokesperson for AARP about the retirement crisis, he said that AARP has not been actively involved with retirement security because there hasn’t been a hue and cry from the general population. The spokesperson said that to date they have explored “ways in which we can expand access...such as the automatic IRA. We have promoted auto-enrollment. Adequacy is a tougher nut to crack.”

Sorry, AARP, as I pointed out in the first chapter, automatically enrolling people in an inadequate savings scheme, whether an automatic IRA or a 401(k), is like giving a cancer patient aspirin instead of chemotherapy. We need to send a “hue and cry” to AARP that if Australians can “crack tough nuts,” we need to as well. Contact AARP at http:/ /www. aarp. org/ about_aarp/ contact/ a2003-01-28-contact-issuesform. html and urge them to support my Security Act.

Finally, contact a new organization called Retirement USA that supports retirement reform and is looking for input. While the organization appears to have bought into Ghilarducci’s flawed assumption that 401(k) plans are risky, it does favor considering Australia’s superannuation system. I urge you contact them at [email protected] and ask them to consider my proposed legislation.

Save on a Wedding by Having It in the Winter

Here's an article by MSN Money that says you can save a ton of money on a wedding by having it in the winter. Some of the savings you can expect:

The largest wedding-related expense is the banquet reception, which can cost more than $10,000, depending on the number of guests, location and menu, Markel says. Typically, banquet facilities charge a fixed price per person. But between January and March, the total cost often drops between 20% and 50%, Markel says. (The savings will be lower in states that have warm weather throughout the year, like parts of Florida and California.) Another option, of course, is to skip dinner. Lunch or brunch can save you 50%.

Fewer weddings mean fewer requests for photographers and videographers. Jeff Sharpe, a co-owner of Sharpe Photographers in Roseville, Calif., where the starting price for photos is $2,200, says the company offers 10% to 25% discounts for weddings between January and March. During the same months, Eli Allen, the owner of Majestic Images in Philadelphia, who charges a starting price of $7,000 for photography and video combined, offers a 20% discount.

Limos are at their most expensive during prom season and peak wedding season -- periods that winter weddings avoid. So expect to pay 10% to 20% less during the winter than you would in May or June, Markel says.

Basic economics -- less demand = lower prices.

Is this why Billy Idol sang of a "White Wedding" all those years ago? Was he simply looking to get married on the cheap? ;-)

How to Buy a Home You Can Afford

The following is an excerpt from America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need, courtesy of FT Press, imprint of Pearson. Originally published in "America, Welcome to the Poorhouse." Like the author, I've also suggested guidelines for buying a home as well as talked about the economic advantages of moving.

While I can’t wave a magic wand and make homes affordable in high-cost regions, those of you who are currently renting in the Northeast and California may need to consider finding a home in an affordable region that could also be a good investment because the local economy is strong. That was the subject of my first book, The Cost-Conscious Home-Buyers’ Guide, published in 1991.

The solution to the affordability crisis now is the same as it was when I wrote that book: if you can’t stand the heat, get out of the kitchen. If homes are unaffordable where you live, consider moving to where they are affordable.

For my first book I selected 20 areas within shooting distance of the national median home price at that time, $93,000. I also selected destinations that were judged to be among the 100 fastest growing between 1977 and 1987 by the forecasting firm of Data Resources Inc. in Metro Insights. Finally, I eliminated all metro areas that scored lower than 100 in the Places Rated Almanac’s “overall category,” which took into account education, culture, climate, crime rate, and other factors in all metro areas.

As in my first book, in this chapter I am ranking locations by Places Rated Almanac’s ranking of “best places to live” features—because you want to look for not just a job and an affordable home but a desirable destination that will attract potential buyers of your home. To meet my criteria, the regions had to rank in the top 100 of the 379 regions nationwide.

Unfortunately, most of the regions I had picked for my first book either have become so unaffordable that they would no longer qualify or have become “riskier investments” due to the slumping 2008–2009 economy. In addition, because home prices have become ever more unaffordable, I needed a huge amount of wiggle room on home prices—more than tripling the ceiling to $300,000 because if I moved it any lower I’d lose too many top Places Rated Almanac rankings. Yep, that’s how much home prices skyrocketed in 18 years! (All median home prices are from the National Association of Realtors.)

The six regions I chose for this book are Portland, Oregon; Denver, Colorado; San Antonio, Texas; Austin, Texas; Houston, Texas; and Raleigh, North Carolina. These regions were selected based on the following economic rankings: Moody’s Economy.com, requiring that the region rank in Moody’s top quintile, in the top 50 by the Milken Institute and among Inc. magazine’s Top 20.

Moving is not for everyone and you have to consider carefully before you pull up stakes. But if you can’t afford a home where you currently live, it’s worth the time and effort to check out your options.

What’s more, these regions may offer you the same or better amenities than you’d enjoy in your current destination. Whether it’s features such as the gorgeous Columbia Gorge outside of Portland and some of the best food I’ve ever eaten inside of Portland; the multitude of skiing, urban trails, and white-water rafting in the Denver area; the Latino cultural events and rodeos in San Antonio; the mind-boggling array of indie rock, bluegrass, and reggae experiences in Austin; the world-class, year-round symphonies in Houston; or the museums, best-of-Broadway shows, and live concerts in Raleigh, these regions are incredible experiences and affordable places to live. Good luck and happy house-hunting!

How to Be at the Bottom of the Financial Barrel

The past three days I've talked about the book The Difference: How Anyone Can Prosper in Even The Toughest Times by Jean Chatzky. We reviewed the 20 factors that separate the wealthy from the not-so-wealthy, have detailed who the wealthy actually are and how that got that way, and have covered the next-highest group, the Financially Comfortable, and what got them to their lofty position. Today, we'll cover the majority of people in the US -- those barely treading water financially and those in the midst of drowning.

The book classifies these two groups as Paycheck-to-Paychecks (54% of the population) and Further-in-Debtors (15% of the population.) We'll cover each of these groups separately, starting with what makes the Paycheck-to-Paychecks what they are.

The book says that both personality attributes and financial habits contribute to locking the Paycheck-to-Paychecks where they are financially -- living from one paycheck to another, barely getting by, and one financial problem away from money trouble. This said, the book notes that the habits are the keys -- what really locks them into a dismal financial life. Take a gander of what goes into making a Paycheck-to-Paycheck person:

• Overspending is the key reason that people slip from a position of financial security into a paycheck-to-paycheck existence. It's a vicious cycle. Once you overspend, it's tough -- if not impossible -- to tap into the habits that move people into the range of the financially comfortable. Once you overspend, you cannot save habitually. Credit card debt is a savings killer, and only 22% of paycheck-to-paychecks can pay off their balances every month.

• Paycheck-to-Paychecks have investable assets, on average, of $83,000. That number is skewed by what I like to call the "six-figure Paycheck-to-Paychecks." These are the high earners who still can't seem to make ends meet. The folks who feel broke despite the fact that they're bringing in $100,00-plus a year. Fully half of paycheck-to-paychecks, however, have less than $25,000 to put to work to grow their financial futures.

And here are a few tidbits that typify the Further-in-Debtors -- people who are already in a hole and are tunneling down further:

• Less than 1/4 save anything each month or make a contribution to a retirement plan.

• 56% have less than $10,000 in investable assets.

• They're both unhappy and insecure.

• Nearly half get physical symptoms like insomnia, heartburn, stomachaches, or headaches when they think about their finances.

The book goes on to say that Further-in-Debtors blame bad luck for their financial situation. The author blames "hubris," commenting the following:

The Paycheck-to-Paychecks overspend and know they're doing something that's not in their own best interest. The Further-in-Debtors overspend without a thought because they feel entitled. They deserve the nights out, the new clothes, the latest technology. How do I know? Our research gave me a peek into their budgets. A full third devote a decent chunk of their budget to entertainment or extras -- nonessentials as far as I'm concerned. Far fewer devote any money at all to saving for tomorrow.

Here are my thoughts on this subject:

1. I often get ridiculed for saying that spend less than you earn is my best piece of financial advice. After all, the hecklers note, this is "common sense." It's not common sense for 69% of the US population!

2. Yes, if you're overspending, you don't have any surplus to help build your net worth. The only solution is to create that surplus by increasing your income, decreasing expenses, or both.

3. Notice how high-earners can also be in a less-than-stellar financial group? Yep, because even if you make $100k per year, if you spend that much or more you're going nowhere financially (except perhaps backwards.) We've profiled many of these people over and over again here.

4. On the flip side, wealth doesn't require a high income. Even if your income isn't as high as many others, you can still save if you simply spend less than you earn. It works!

5. The Paycheck-to-Paychecks and the Further-in-Debtors are doing the opposite of what it takes to get rich. Is it any wonder they are not making financial progress?

6. Interesting to see how money problems impact people's health. Maybe I should write a piece on "how to become healthy by becoming financially secure."

7. The entitlement (or "I deserve it") mentality is alive and well in the US today. Unfortunately it's invaded our government big-time over the decades and hence we overspend as a nation since everyone "deserves" certain "rights." (Certainly there are people that need legitimate financial help to survive, but this group is much smaller than the one that actually gets aid, IMO.) If the US government was a person, it would be a Further-in-Debtor. Interesting point to consider.

Are There Higher Interest Rates in Your (Near) Future?

The following is a guest post from Richard Barrington, the financial spokesperson of MoneyRates, a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

Sometimes it seems as though bank customers cannot catch a break. Just as the national savings rate reached a decade-long high this year, the interest rates banks offer on those savings shrunk to microscopic levels. However, if you've been disappointed by blah bank rates, hang on. There are at least five reasons to expect those rates to take a turn for the better:

1. The end of the recession. Classically, an economic expansion creates more demand for capital, and thus can push interest rates higher. With some optimistic signs for the U.S. economy, it may be that the end of the long recession is in sight. Besides the cyclical boost to interest rates that could accompany with the end of the recession, a scaling back of government intervention to keep interest rates low would allow them to rise to more natural levels.

2. Inflation. The past year has seen deflation on a scale not experienced since the early 1950s. Interest rates normally offer a small premium over inflation, so a return of inflation would mean a move up in interest rates. Of course, depositors don't really benefit when higher rates result from higher inflation, but this would make it all the more important for depositors to move with the market.

3. A rebound in housing. Recent months have seen a mild recovery in housing prices. If housing demand mounts a more sustained recovery, it will be another factor creating demand for capital, and thus the likelihood of higher interest rates.

4. The threat of protectionism. Recently-announced tariffs on Chinese tires will not by themselves contribute much to inflation, but protectionist measures have a way of escalating. This is another factor that could push prices, and eventually interest rates, higher.

5. History. Obviously, history itself won't compel interest rates higher, but it is a useful guide to what people should expect in the normal course of events. Historically, inflation has tended to run between 3% to 4%. So, it wouldn't take extraordinary inflation, but merely a return to normal to more than wipe out today's interest rates.

The possibility of higher interest rates should do more than give you reason to hope; it should also influence your deposit account choices. It may be wise to keep deposits flexible in savings accounts whose rates will adjust upward without delay, rather than locking yourself into CDs that may keep your interest rate down after market rates have headed upward.

Help a Reader: Paying for Tuition

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

Who can I contact that would give money to help with my daughters college tuition? She's about to finish college in December but her loans are far from over and we are struggling to pay them.  We have a parent loan besides her having her own loans that she'll start paying in June of 2010. Please let me know if you can help.

To be clear, she's asking if there's any money available to help pay tuition costs this semester -- the semester we're currently in (and the last for her daughter). Anyone have any suggestions for her?

How to Be Financially Comfortable

The past two days I've talked about the book The Difference: How Anyone Can Prosper in Even The Toughest Times by Jean Chatzky. We reviewed the 20 factors that separate the wealthy from the not-so-wealthy and have detailed who the wealthy actually are and how that got that way. In this post, we'll discuss the second-highest financial level -- the Financially Comfortable. A few facts about them:

• They make up 27% of the US population.

• On average, they have investable assets of $240,000 -- a number that rises with age.

• They are even more likely than the wealthy to make and stick to a budget.

• Nearly 70% pay off their credit cards in full every month -- the rest either pay more than the minimum or don't use cards at all.

• 75% devote a chunk of household income each month to personal savings.

• 2% say money causes headaches in their lives.

So, with all these things going for them, why are they "only" financially comfortable? Why aren't they wealthy? The main reasons:

• They're less optimistic.

• They're less likely to take a risk at an advantageous time.

• They're less likely to reach out of that inner, familial circle to make a connection with someone who holds the keys to getting ahead.

My thoughts on these findings:

1. There's nothing wrong with being financially comfortable. In fact, the lowest "Financially Comfortable" person in this survey is better off than 70% of the US population. Not bad at all.

2. I'm guessing that they are more likely than the wealthy to make a budget because the wealthy have gotten to a point where they don't need it any longer to make sure they live within their means -- it's ingrained in them. We passed through the same stage. We used to monitor our budget very closely and update it each month. Now I make it out at the beginning of the year, refer to it at the half-year point, and that's it.

3. They're savers and they have high net worths. Not surprising at all. The keys to wealth aren't that difficult to follow.

4. I think the lack of stress due to money problems as well as the benefits of being optimistic are very under-rated in our society.

5. "They're less likely to reach out of that inner, familial circle to make a connection with someone who holds the keys to getting ahead." Sounds a bit like me. That's why I force myself to network regularly.

Stay tuned for more about this book. Tomorrow we'll cover the factors that doom people to the two lowest financial groupings.

Box of Books #2

My last box of books was a huge success -- I gave them away through my giveaway newsletter -- so I thought I'd do it again (if you want a chance to win, be sure to sign up for my newsletter here -- I'll be giving them away in November.) For now, here are the books I've received from publishers and a bit about them (from Amazon):

• 25 Ways to Make College Pay Off: Advice for Anxious Parents from a Professor Who's See It All - In the next few years, parents can expect to spend more than $40,000 per year on their child’s college tuition. While that number may seem frightening, it is not as grim as the statistics that predict their child’s chances of actually finding a job after graduation. Only about 20% of employers believe college graduates are ready for the workforce, and only 40% of graduates will find a job that will ensure their financial independence. The good news is that with the right advice, parents can turn their pricey investment into one that truly yields a high return and a rewarding career for their son or daughter. Professor Coplin offers honest advice for parents who want their child’s college experience to ensure future success– both financially and emotionally.

• Managing Brand You: 7 Steps to Creating Your Most Successful Self - Whether we realize it or not, we are all brands. We all have qualities that shape and influence how the people in our lives see us--and how we see ourselves. Nationally respected brand experts Jerry Wilson and Ira Blumenthal have helped some of the most exceptional companies and individuals in the world perfect their images. Now, in Managing Brand You, they reveal their proven seven-step process for personal brand building. Using illuminating examples from successful corporations like Coca-Cola and Starbucks as well as high-profile celebrities like Bono and Oprah, Manag­ing Brand You gives readers a step-by-step guide for conducting a self analysis, creating a unique identity, defining their objectives, discovering their passions, creating a plan, putting that plan into action, and monitoring their progress. Wise and insight­ful, this book will help readers identify what it is that makes them unique and communicate it in a way that guarantees them success.

• Make Your Contacts Count: Networking Know-how for Business And Career Success - (From a customer's review) I just lost my job at a high tech company in Silicon Valley and decided to start networking right away. After reading the first 25 pages of the book, I implemented some of the points Baber mentioned and it was amazing. If every young high school person read and digested the info in this book, he or she would have a competitive advantage over their competition. The info would help them through college and throughout their careers. I love the no-nonsense approach to networking that's conveyed in this book (I've now read the entire book, but will keep it as a reference book).

• The Complete Guide to Investing in Index Funds: How to Earn High Rates of Return - No product description at Amazon (yikes!) but this book covers the basics of investing in index funds.

• The Levity Effect: Why it Pays to Lighten Up - The Levity Effect uses serious science to reveal the remarkable power of humor and fun in business. Science proves it -- fun is good for business! Based on ten years of extensive research, the authors argue against business tradition to reveal the powerful bottom-line benefits of leading with levity. With interviews, exercises, and case studies, the book reveals how humor in the workplace will help you communicate messages, build camaraderie, and encourage creativity for a better workplace and bigger profits.

• Girl on Top: Your Guide to Turning Dating Rules into Career Success - Nicole Williams is the tell-it-like-it-is career expert who you wish could fight your work battles for you. But with her ingenious approach-taking the tactics used to land a man and applying them to your career-you'll be able to handle any work situation and come out on top. Here, Nicole introduces twenty tried-and-true dating rules such as "Don't Give Away the Milk for Free" and "Don't Waste the Pretty" and reveals how they can be applied just as effectively in the office. Among other topics, Nicole dishes on how much to reveal at work as well as what to put up with from your boss (and, more importantly, what not to). She tackles everything from having the money talk to leaving them wanting more on a job interview. And sprinkled throughout GIRL ON TOP is fashion advice ("Top Ten Commandments of Style") and checklists to determine if you need to get a life.

• No Limits: How I escaped the clutches of Corporate America to live the Self-employed life of my dreams - Refreshingly candid and honest, this career-minded guide helps professionals determine if self-employment is their ticket to a better life. Written by a successful, independent software developer, rather than a career coach or consultant, this straight-to-the-point book offers readers practical and useful advice for how to get started on their path to self-employment. It also informs the reader what the major benefits to self-employment are, along with identifying who is best suited for self-employment and what things these people will need to consider. The author, Sara Morgan knows from direct-hand experience how frustrating and un-inspiring the life of a Corporate employee can be. Four years ago she made the jump to self-employment and despite challenges, stayed true to her belief that a better, more fulfilling life lay ahead. She now lives the life she always dreamed of and she hopes to inspire others to take the remarkable path she has chosen. This book is not a "how to get rich quick story". It is a "how do I maximize my potential and feel satisfied and happy with what I am doing in life" story.

• America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need - Too many American families are racing toward financial catastrophe--saddled with exploding credit card and college debt, out-of-control housing costs, and underfunded 401(k) accounts. America, Welcome to the Poorhouse reveals the political and economic forces that got us into this predicament, strategies to get Congress to enact needed reform, and practical tips you won't find anywhere else on how to make the most of your money until reform happens. White offers indispensable practical advice for regaining control of your own financial future--specific strategies for reducing your debt, safeguarding your retirement, and helping your children get the education they'll need to compete in today's world.

There you have them. I'll be giving them away in November (most are like-new, but some are slightly used), so sign up for the giveaway newsletter asap if you want a chance to win.

Best of Money Carnival #22 is Up

Just my weekly note saying the Best of Money Carnival #22 is up now. Congrats to all participants and especially the winning post, The Great Depression II: Says Who, Huh?

What Makes Wealthy People Wealthy

Yesterday I talked about the book The Difference: How Anyone Can Prosper in Even The Toughest Times by Jean Chatzky. In particular I noted that the book broke survey respondents into four groups and listed the percentage each group was of the US population. Here they are:

• The Wealthy - 3%
• The Financially Comfortable - 27%
• The Paycheck-to-Paychecks - 54%
• The Further-in-Debtors - 15%

Today we're going to focus on the top group -- the Wealthy -- and detail who they are and what the difference is between them and the rest of the world. We'll start with the vital stats. On average, the Wealthy have investable assets (not including home equity) of nearly $2 million But the research also categorized others as wealthy if they had achieved the following wealth levels by various ages as follows:

• $1 million or more for ages 55 or older
• $750,000 or more for ages 45-54
• $500,000 or more for ages 35-44
• $250,000 or more if under age 35

How did they become wealthy? A few highlights:

• Most did not become wealthy overnight nor did they become so via inheritance, etc.

• Nearly nine out of ten said their wealth developed over time.

• They credit a combination of the Top Twenty (covered yesterday) including attitudes/attributes and habits (you have to have some of both).

So what are those traits and habits that made the Wealthy become wealthy? Here are the seven traits:

• Optimism
• Resilience
• Connectedness
• Drive
• Curiosity
• Intuition
• Confidence

And here are the four habits of the Wealthy:

• Work hard
• Save habitually
• Invest soundly and aggressively
• Give back

One final quote from the book before we get to my thoughts:

Interestingly, although the Paycheck-to-Paychecks and Further-in-Debtors are likely to blame their financial troubles on bad luck, the wealthy say they didn't get there by virtue of a lucky break. They got there by landing a good-paying job and sticking with it. Or by creating, as an entrepreneur, a good-paying job for themselves.

Now, a few comments from me:

1. The net worths they used seem right to me. If you have that level of wealth at those ages, you certainly are among the richest people in the US (not to mention the world.)

2. So many people are focused on how to get rich quickly. Again we see that the pathway to wealth takes time for the vast majority of people.

3. Interesting list of traits. If you didn't know what this research was about and were asked if someone with those seven attributes would be wealthy or not, you probably would say "yes." Seems fairly intuitive.

4. The financial habits look very similar to my three steps for getting rich. Funny how that worked out, huh?

5. Again we see that giving and being wealthy are related (FYI, giving also makes you happier.)

6. More proof that the difference between being wealthy and not being wealthy is how successfully you manage your career. Again, not new news to regular readers here, but it feels good to me to have some factual validation. :-)

Come back tomorrow and we'll meet the next-highest group, the Financially Comfortable.

A Great Way to Get a Degree Without Paying For It

Here's a piece from Yahoo that talks about getting an employer-paid degree. It's a great idea if you can hack zero free time for several years (working full-time and going to school at night can be a real time sucker) -- you get a degree (usually an advanced degree like an MBA) and don't have to pay for it. Then, if all works out in the end, you either get promoted, get paid more, or cash the degree in and head for another company (where you either get paid more, get promoted, or both.) What's not to love?

Well, there are a couple things not to love. First, as I mentioned, is the time commitment. Every person I've ever known that's gotten a degree while also working has struggled big-time managing work, school, and the rest of their life (which often has to take a backseat to school for several years.) Second, you have to go to the right school or the degree is virtually worthless. Just like any college degree, you need to make sure it's a valued degree by many employers. For example, a night MBA at Harvard is worth a whole lot more than a night MBA from University of Nowhere. Believe me, this is VERY important. I've had a few friends/co-workers that spent several years getting their degree so they could improve their career. Only they got it from a college that no one cared about -- even the current employer. They got no raise, no promotion, and their MBA from Po-Dunk U couldn't get them a job elsewhere. yeah, they didn't have to pay for the degree, but they wasted a good portion of their lives (several years) to get a worthless piece of paper.

On the upside, an advanced degree from the right school can be a huge boost to your career. It can move you up quickly to more pay and responsibility -- either within your current company or with a new one. And if you're willing to put in the time and effort, it's yours for nothing (assuming your employer reimburses you for all expenses.) It's a HUGE employee benefit when you look at the increase in earning potential you can reap over the course of a career (for example -- see what my MBA did for me, though I got mine right out of school and paid for it myself.)

I'm sure that some of you reading this have either gotten an advanced degree paid for by your employer, are thinking about it, or are in the midst of the process. Or maybe you've had friends do this. Please share your thoughts with us -- what went right, what went wrong, what would you change, and so on.

Is Hiring a Career Coach Worth It?

What if something costs you $10,000 but earns you $100,000 in return? Is it a good deal? The answer is -- maybe.

CNN Money asks if hiring a career coach is worth it or not. Here's a summary of their answer:

A good coach can be helpful if your job search is lagging or you're getting discouraged, Metzler says. Part of his or her job, after all, is to keep you on task. A coach may also make sense if you're transitioning to a new career, returning to the workforce, or trying to advance within a company, he says. In such cases, an outsider may help you focus your efforts and identify necessary skills.

But sessions average $161 an hour, according to the International Coach Federation trade group, and clients typically use three to six visits. So explore free options first. Most colleges offer their alumni gratis meetings, by phone or in-person, with the trained staffers in their career offices. Professional organizations also sometimes offer seminars to members.

So, their thinking is:

1. If you can get it for free and get the same result, that's better (of course.)

2. But if you can't get it for free or if you get a better result with a career coach, then it may be worth it.

Personally, I've never used a career coach and have had a good career. But could I have benefited from one? As you've all heard me say a million times, your career is your biggest financial asset. The difference between even a "good" career and a "great" one can be millions of dollars over a lifetime. In fact, if a career coach could simply help you gain an additional 1% in income every year, the total amount would be massive and it would be a no-brainer to hire one. But that's the rub -- can a career coach really get you an extra bump or is it an expense you don't need to incur.

What's your take on the issue -- worth it or not?

BTW, another option is to become a career coach and make money at it yourself. I've always thought I could do this and make a decent income at it.

The Difference Between the Wealthy and Everyone Else

I've been reading the book The Difference: How Anyone Can Prosper in Even The Toughest Times by Jean Chatzky. It's quite fascinating.

The skinny on the book is that a comprehensive survey was given to 5,000 people asking hundreds of questions in four main categories: financial attitudes and behaviors, goals, personality, and nonfinancial behaviors. The responses were then sliced and diced to try and determine what the difference was between those at the top of the economic ladder and those at the bottom.

The responses revealed that there are four main economic groups in America. I'll detail them more in future posts (especially the top group), but for now, here's the list and what percentage of the population they are:

• The Wealthy - 3%
• The Financially Comfortable - 27%
• The Paycheck-to-Paychecks - 54%
• The Further-in-Debtors - 15%

The survey tested for hundreds of factors to try and determine the difference that helped people rise to the top. And out of those hundred, only twenty were the ones that made the difference. They are:

Financial Attitudes and Behaviors

• They feel stocks are worth the risk.
• The devote money to personal savings or a 401k each month.
• They save regularly for emergencies.
• They have invested for retirement.
• They have reduced outstanding debt.

Goals

• They want to be financially comfortable during their working years.
• They aim to retire comfortably.
• They always knew what they wanted to do (for a career).
• They made it a goal to accumulate $1 million.
• They want to own a home.

Personality

• They are confident.
• They are happy.
• They are optimistic.
• They are competitive.
• They are leaders.

Nonfinancial Behaviors

• They have a college degree.
• They socialize with friends at least once a week.
• They exercise at least two to three times a week.
• They read newspapers regularly.
• They are married.

Now before you call it quits and decide that you can never do all 20 of these and thus are destined to a life of poverty, the good news found that you need, on average, ten of these factors (any ten) to make your way to financial comfort (the second-highest group) and twelve to make it into the very highest group (the wealthy.)

I'll be posting on this book for the next couple weeks, so we'll have plenty of time to dig into the details. But for now, let me make these comments:

1. I find this sort of stuff really interesting, especially given the breadth and nature of the research -- it appears to be top-notch and cover a sample size so large that it's bound to be pretty accurate.

2. Notice what wasn't in the list of 20? A high income. Yes, those in the top groups have high incomes on average, but a high income was NOT a factor that determined which group someone would fall into. Oh yeah, we'll cover this issue in depth in a later post.

3. Depending on how I grade myself (am I confident? happy?), I'd say that I meet 17 of these. The ones I don't are:

• They always knew what they wanted to do (for a career). I originally wanted to be a veterinarian. Then a lawyer. It wasn't until I was in my junior year of college that I decided on "business" as a field, and even then it took me a few more years to land in marketing.

• They socialize with friends at least once a week. If this means "go out with friends" or "have them over/go over to their house", we don't fit. But if it's more like "regularly see friends at various functions" we do (church, neighbors, volunteer organizations, soccer and basketball games, etc.)

• They read newspapers regularly. Depends on what "regularly" means. I read the Saturday and Sunday papers, though not very thoroughly. I get most of my news from the web.

As I said, there's much more to come from this book. If you want even more than what I'll provide, pick it up at your local bookstore or library. It's a good read IMO.

Three Ways to Avoid Overdraft Fees

After I wrote the piece on how debit cards can rack up tons of overdraft fees for users, I saw this piece by Kiplinger that suggests three ways to avoid overdraft fees as follows:

• Bank at a credit union or small bank.
• Link to another account.
• Set up two accounts.

Ok, maybe I'm a bit too simplistic, but I've had a checking account for almost 30 years and have never had an overdraft charge that was my fault (I did have some when my bank went under, but that's a different story). Here's my ONE suggestion for how to avoid overdraft fees:

Keep enough money in your account to cover what you spend.

Is it really that hard to simply budget for what you need, know what you have available, and not spend more than that? I guess it must be since banks rake in $27 billion a year by covering overdrafts on checking accounts, but I really don't see the problem. Seems to me that simple, basic money management techniques would make this a non-issue.

What am I missing?

Examples of Making Money from Your Hobbies

Turning your hobby into an income is one of my 11 great ways to earn extra money. I've been doing this myself and have a few friends doing the same, so I thought I'd detail those jobs here -- maybe they'll spark some ideas for the rest of you. Here goes:

• My son and I spent Saturdays in September and October making money as soccer referees. I'll be writing a series on how to do this, what we did, what we made, etc. in the future, so stay tuned. I'm sure there's money to be made in refereeing all sorts of sports -- football, basketball, etc.

• A friend off mine is training for the ski patrol at a local slope. He gets a bit of money, discounts on passes for the family, and helps people while doing something he loves.

• Another friend who is an avid cyclist works extra hours at a bicycle shop. He earns a bit of money and big discounts on merchandise simply for talking about bikes and helping customers -- things he loves to do.

• A friend from church whittles basic wooden toys and sells them online. He makes a few hundred dollars a month doing something he'd do anyway.

In addition, a recent Consumerist piece I wrote featured several suggestions by readers of how they've turned hobbies into extra incomes. Some of the ideas listed are:

• Recording demos for local bands
• Residential PC repair
• Become a Notary Public
• Get ordained by the Universal Life Church online for free and marry people

So there are some ideas for those of you wanting to make some extra money. I'm sure many of you are doing this already, so please share your ideas with the rest of us. What are you doing to make money off a hobby (or simply to make some extra money)?

How Tithing Can Transform You

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

As regular readers know, I've written a ton about tithing (more on that later). So when I ran into this summary of the book Tithing: Test Me in This that listed how tithing can transform you -- I had to run with it. Here are the ways they say tithing can change you:

• It reminds you that your life is not your own. When you answer God's call to tithe, your life becomes a significant instrument God works through to change the world for the better.

• It helps you become more like Jesus.  One of Jesus' characteristics is His generosity.

• It reveals the ways that God is providing for you.  When you show God that you have the faith to tithe regardless of your circumstances, He'll show you that your faith in Him to provide for your needs is valid.

• It widens your perspective on the world.  Tithing draws your attention to the fact that many people in the world aren't nearly as affluent as you. 

• It changes your values.  The more you invest your money in what matters to God, the more you'll start to value that yourself.

• It helps you trust God in deeper ways.  When you make your financial resources freely available to God, you invite God to work through every part of your life. 

• It deepens the bonds between you, God, and others in your church community.  As you and your fellow church members express your faith in God through tithing, you'll grow closer to Him together. 

• It teaches you the importance of sharing your time and talents, too.  When you regularly give money to God, you'll naturally think of other ways you can give.

I've been a tither for a long time now and can say all this (and more) is true. When you tithe you focus less on yourself and more on others and God. That's not a bad thing, is it? (I'm sure some will think it is, unfortunately.) I also think it makes you a better money manager, but that's for a different post.

Anyway, I thought it would be fun to list many of the tithing-related posts I've written in the past. Here goes:

• Tithing – A Plan for Grateful Giving

• The Purpose of Tithing

• What Would Happen If All Christians Tithed/Gave More?

• Tithing Versus Giving Generously

• Tithe or Pay Off Debt -- Which One Should You Do First?

• Tithe versus Offerings, What's the Right View?

• Why to Keep Tithing in Tough Economic Times

• Should You Care Where Your Tithe Money Goes?

• The Tithe is for Today

• Thoughts on the Bible, Tithing, Giving, and Faith

• Questions about Tithing

• How to Tithe When You Can't Afford To

• Dave Ramsey's Take on Tithing During Tough Times

• Calculating Your True Gross Pay for Tithing Purposes

• Robert Kiyosaki on Tithing

• To Tithe or Not? Being Rich Toward God

How College Students Can Manage Their Future Career

This is a guest post from the Studenomist of Studenomics, a place for college students to prepare for the life ahead when it comes to money and career, without any of the boring stuff.

It happens to almost all 20 somethings. You graduate from college and immediately begin to stress about getting your career off the ground.
Luckily today all college students can get a head start and begin managing their future career in college.

One of the main points I have learned here at Free Money Finance is that your career is your greatest asset. At first I didn't put much thought into that theory. Have a few posts and a great series on all of the jobs that FMF held, I became convinced that your career is in fact your greatest asset.

Today I want to show all college students how to begin managing your future career while still in college. Here's how:

• Watch your online reputation. Posting pictures of yourself drunk laying on the ground may be funny to your friends on your Facebook list. However, if they become public then future employers will not find those pictures funny.

Most college students do not even think twice about what they do online. We tend to put up pictures of ourselves drunk from the weekend without putting much thought into the privacy issues surrounding the images. Sure you can send your friend a picture of yourself from the weekend but just make sure it is a public image that is not posted.

• Get your name out there. Make sure people in your industry know your name or at least meet you once. Don't delete the emails your school sends you about networking events or information dinners. Do whatever it takes to attend these events. Find out who the guest speakers are. Find out who will be there. Do your research. Come prepared. Get your name out there. If nothing comes out of it right now then don't worry it could pay dividends in the future. Your goal is to make sure that people in your industry are at least aware of you. These are potentially the same people that will be interviewing you one day.

• Make your own business cards. You don't need to be an accomplished business man to have your own business card. Create a simple business card that has your important information (contact details and field of study at least).

• Take relevant courses. Don't just fill up your schedule with easy courses to boost your GPA. It's alright to take a few easier courses but a full schedule of easy courses will grant you an easy degree followed by a HARD job hunt. Take public speaking courses to improve your interview and meeting skills. Take writing courses for all of the reports you may have to write in the future. Take networking courses to help you with your job hunt. You are paying for your courses already so you may as well make the best out of them.

What advice would you share with college students that are looking to grow their career at an early age?

From the Ugh Files

Here are some stats I found recently that give us a lot of bad news on how people are managing their money. The highlights (or lowlights if you prefer):

• 61 percent of workers report they always or usually live paycheck to paycheck to make ends meet. This is up from 49 percent last year and 43 percent in 2007.

• 30 percent of workers with salaries of $100,000 or more report that they too live paycheck to paycheck, up from 21 percent in 2008.

• To get by financially, 21 percent of workers say they have reduced their 401(k) contributions or personal savings in the last six months.

• Twenty-three percent of workers who earn six figures or more report that they have also reduced their 401(k) or savings.

• Thirty-six percent of workers say they do not participate in any programs such as 401(k), IRAs or retirement plans, up from 31 percent in 2008.

• One-third of workers (33 percent) report that they don't put any money aside into their savings each month, up from 25 percent in 2008.

• Thirty percent set aside $100 or less per month for savings and 16 percent save less than $50.

Ok, so here's what I get from this:

1. The majority of people are on the brink of big financial trouble. One month without a job and they're in deep do-do.

2. A large portion of people who make a great salary are in this boat. It's unbelievable to me that 30% of people who make over $100k (or more!) are living paycheck to paycheck. Maybe the live in ultra-expensive cities? If so, that's just another reason to move.

3. Reducing savings is never a great option. Isn't there something else that can be cut (like cable TV, expensive vacations, etc.)?

4. Obviously the economy has a part to play in these numbers since things have gotten worse since the last survey. That said, the results weren't all that rosy in 2007 and 2008, were they?

How does living paycheck to paycheck happen? (I've never done it, so I honestly don't know.) Is it an ever-increasing lifestyle as salaries increase? Or maybe it's an income hit that takes away all the slack in an otherwise decent budget? Or maybe something else? Anyone have any insights here?

Anyone Use Restaurant.com?

Here's a Sound Mind Investing review of Restaurant.com, the website where you buy discounted gift certificates to restaurants in your area. Their main conclusion is that the standard offers at Restaurant.com can save you a decent amount of money and the special offers can save you a really good amount. Sounds like they deliver as promised.

I'm wondering if any of you have used Restaurant.com and what sort of experiences you've had. I have wanted to use them, but upon checking the locations in our area, they are either places that are too far away or spots where we'd never want to go -- hence I've never used them and can't offer any insight into how the offers really pan out.

Any Restaurant.com users out there?

Star Money Articles and Carnivals for the Week of Oct 19

For weekday updates of what I find to be some of the most interesting personal finance articles on the web, follow me on Twitter. For now, here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week and my posts that were included:

• EDITOR'S CHOICE! Carnival of Personal Finance - The 5 Stages of Investing Enlightenment 

• EDITOR'S CHOICE! Carnival of Pecuniary Delights - The Whip Cracks Both Ways 

• The Sun’s Financial Diary is giving away a copy of Quicken. 

• Lazy Man and Money saves and makes money with an iPhone.

• FrugalDad covers investment mistakes in a bear market. 

• BripBlap says everyone is special. 

• My Dollar Plan tells what an ETF is. 

• Money Smart Life looks at fixed annuities. 

• The Digerati Life offers a 60% budgeting solution. 

• Len Penzo compares store brands to name brands.

• FiLife asks what to do with found money. 

• Carnival of Money Stories - A Real-Life Financial Meltdown

Enjoy!

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

Another Broke and Unhappy Lottery Winner

Check out this piece from the Washington Post:

William "Bud" Post III, 66, whose $16.2 million in lottery winnings brought him debt, despair and heartache, causing the kind of trouble often recounted in country-western songs, died of respiratory failure Jan. 15 at a Pittsburgh area hospital.

"Everybody dreams of winning money, but nobody realizes the nightmares that come out of the woodwork, or the problems," he said in 1993, five years after winning the Pennsylvania lottery.

His problems included a brother who tried to hire a contract murderer to kill him and his sixth wife; a landlady who forced him to give her one-third of the jackpot; and a conviction on an assault charge, after Mr. Post fired a shotgun at a man trying to collect a debt at his deteriorating dream house in northwestern Pennsylvania. He went bankrupt, came out of it with $1 million free and clear and spent most of that windfall, too.

"I was much happier when I was broke," he moaned.

Ok, so we can dispel the "lots of money makes you happy" myth with this one, huh? ;-)

Seriously, if you know how to manage it, I think more money can make you happier -- up to a point. The main benefit to me of more money is that it can buy you time that can then allow you more experiences -- which ultimately make you happier. On a recent podcast of the Personal Finance Hour, Jim noted that possessions usually deteriorate with time while experiences get better (in our memories) over time. I think that's very true.

But I didn't really mean for this to become a money/happiness post, but wanted to highlight another instant millionaire who knew very little about managing money, made bad mistakes, was taken advantage of, and wished in the end that he never had won the money. This sort of result seems more the rule with lottery winners than the exception.

For once, I'd like to see how someone with a shred of financial literacy would do with $16 million. Maybe they do ok and we just don't hear about them. Or maybe they don't play the lottery in the first place. Interesting thoughts.

Anyway, to prove that winning the lottery isn't all bad, I'm willing to be the guinea pig. If each state lottery would kick in only $250k (a fraction of their marketing budgets) and give it to me, that would be over $10 million (wikipedia says 43 states have lotteries). I would then spend the money wisely and all the lotteries could market the fact that winning the lottery doesn't doom you financially -- that it's really the bozos who have won in the past that give winning a bad name. :-)

Or, another idea, make winning the lottery contingent upon accepting financial advice from me. For a small fee (maybe 10% of the winnings), I'd help winners manage their fortunes and stay out of money trouble. Sounds like a great idea to me. Any lottery executives out there listening? Do you like either of these ideas?

Ok, I'm signing off now since I'm having way too much fun with this topic...

Tax-Friendly Places to Retire

Have you ever thought of moving when you retire -- you know, someplace that's warmers AND can save you a bundle on taxes?

MSN Money lists tax-friendly places to retire but says it's not as simple as looking at income tax rates. Their thoughts:

Seven states -- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming -- have no state income tax. New Hampshire and Tennessee tax only dividend and interest income that exceeds certain limits.

But many of the remaining 41 states (and the District of Columbia) offer generous income tax breaks to retirees. If you qualify, moving to one of these retiree-friendly areas could be cheaper than relocating to a state with no income tax.

Plus, in tough economic times, states without a personal income tax have fewer sources of revenue and are more likely to raise property or sales taxes and other fees to shore up their budgets. State tax revenues plunged nearly 12% during the first three months of 2009, the sharpest decline on record, reports the Nelson A. Rockefeller Institute of Government. And it may take states years to make up the shortfalls.

So, I'm thinking:

1. If you can save a bundle on taxes AND improve other areas of your life (get closer to family, get a better climate, etc.), why not?

2. You have to be sure you don't increase other living costs when you move.

3. You'd probably have to have a really high income to make this a worthwhile effort, wouldn't you?

But this brings up a related topic -- are you thinking of moving when you retire? If you're like us, retirement is still some time away, so I really have no idea what we'll do. But for those of you who are retired, closer to it, or have talked about the issue, what are your plans?

Eight Steps to Buying a House at a Good Value

The following is an excerpt from America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need, courtesy of FT Press, imprint of Pearson. Originally published in "America, Welcome to the Poorhouse." For a similar perspective, see my suggested guidelines for buying a home.

Once you start house-hunting, you need to consider features that make the house a solid investment—not just ones that meet your family’s needs, but will be attractive to the next buyer.

1. First, shop around for a mortgage. Why so soon? You’ll need to get preapproved by a bank for a home loan up to a certain ceiling—actually, many real estate agents will require preapproval because they don’t want to waste time showing homes to potential buyers who can’t afford them or won’t be approved for a mortgage. Make sure you specify that you want to be qualified for a fixed-rate mortgage. While you’re not bound to borrow from the lender and it’s not obliged to offer you the loan, the lender will probably require you to pay an upfront, nonrefundable-if-you-don’t-get-a-mortgage-from-them fee of a couple hundred dollars—and may also require a nonrefundable deposit too. Preapproval means you’re actually starting the loan process with a lender—filling out an application, letting them go through your credit, etc.—but approval typically hinges on the property passing a satisfactory appraisal and inspection(s). That’s why you should shop around for a mortgage and a lender before you ask for a preapproval. A good place to do this is on the home page of HSH Associates under the heading: Browse Lenders and Rates in Your State: http:/ /www.hsh.com/.

2. Once your approval is ready and you’re ready to “shop,” research neighborhoods by their school ranking even if you don’t have or intend to have kids because the home will be more valuable to the next buyer. Typically, the state education department will have the rankings of the school district’s average SAT score, the percentage of kids who go on to college, the student-teacher ratio, and other important criteria.

3. Check out how close the prospective home is to schools, along with recreation facilities: ball fields, parks, playgrounds, pools, etc. Again, these are features that may not only appeal to you but also make it a good investment for the next buyer.

4. Check out the appearance of nearby homes; you’re not just investing in a home, but a neighborhood.

5. If possible, only consider homes with features that make your home a good investment for the next buyer: at least two bathrooms, a basement, three bedrooms, and a two-car garage (assuming that your prospective home is in the suburbs).

6. Consider a “bargain” home—not only fixer-uppers if you’re handy with a hammer, but a small home on a large lot in a great neighborhood that can be expanded.

7. Before you make an offer on a house, “test-drive” your potential commute to work at rush hour.

8. Even if a home inspection is not required in the area where you’re house-hunting, have the house inspected before you buy so that you don’t wind up with expensive repairs.

Make Sure Your Credit Card Has Smart Features

The following is a guest post from Marotta Wealth Management.

Credit cards can be a blessing or a curse. Used correctly, they are both convenient and safe and can help you stick to your budget. But the dark side of heedless use can lead to financial ruin. Rather than rejecting credit cards altogether, however, choose the right card for the right reasons.

You are trying to be faithful to your budget and live well within your means. You want to become a supersaver, someone who amasses real wealth by living simply and investing the remainder. Now you have to set rules for how you will handle credit. If you don't, credit cards could undo all your hard work and planning.

Credit card companies know that people have an irrational loyalty to their first card. That's why they market college students so heavily. You may feel attached to your current credit card, but believe me, the credit card company feels no such allegiance to you.

Because both spouses must live with the consequences, each should have the right to veto any use of credit. Using credit successfully should begin with your choice of card.

Your sole criterion for picking a credit card is to maximize the financial benefit to your family, assuming you use the credit card correctly. You will be paying off the entire balance every month, so certain features, such as the interest rate, are not a concern. Nor do we care about how the company can change the interest rate if you fail to pay.

But to be in this enviable situation, you need significant taxable savings and investments in order to weather a financial emergency. Lacking such discipline, you may want a different type of card.

Credit cards companies create a host of gimmicks to entice you. Usually these come-ons are themed around a hobby or an interest. I'm certain you are proud of your alma mater and rooting for your favorite sports team. The credit card companies are counting on it. You can even have a photo of your children or grandchildren on the front of the card and change it every six months. Don't succumb.

Selecting the right card is worth about 2% of your credit card purchases. So if you spend $25,000 a year using the card, it means an extra $500 in your wallet. You can buy a lot of sports paraphernalia and photographs of your family for $500. Besides, the credit card companies don't really care about your sports team. They sell a matching card for your arch rivals too!

So forget about how the card looks and focus on the rewards program. Airline miles are the oldest and most common. Unfortunately, they are some of the worst reward programs. Over 75% of airline miles expire unused.

Card companies have also learned to provide themes for the rewards. Although it makes great marketing sense for companies to appeal to an affinity group using an exclusive offer, don't fall for such an appeal. Which would you rather have, reward points that can be spent anywhere or rewards that can only apply to one specific interest?

They may have some appealing offer, but you will be able to get it on eBay for a fraction of what you will miss by not using another card. Cash awards can be used to buy anything.

Get the cash. You could be earning game time with the World of Warcraft Visa. Or a donation could be allocated to the Make-A-Wish-Foundation for each of your purchases. But these may not be the greatest decisions after a year. With cash, you are in control. Get the money, and then decide if you want to buy the game time or make a contribution and take the tax deduction.

Most cards have a rewards program worth between one and three pennies per dollar spent. Oddly enough, themed rewards tend to be toward the low end and cash rewards are apt to be higher. Even the popular cards that fund 529 plans don't pay as much as a cash rebate. So get the cash rebate and then fund a 529 plan yourself, which can also net you a state tax deduction.

I've been using the Platinum Discover card, one of the first cards that offered a cash-back bonus. It used to be 2%. Now it is 1% with a 5% cash-back bonus on certain items you sign up for every three months. Even then it has maximum amounts.

During the process of researching this article, I've learned about several flat 2% unlimited cash-back options, one with Schwab Bank. Because we use Schwab as a custodian for our assets, it makes everything easy. The cash rebate is deposited directly into our investment account. That makes it 2% additional savings instead of 2% additional spending.

Usually I don't mention specific products, but my experience should help illustrate two principles. First, the best choice changes regularly. And second, you should be looking for at least 2% cash back on your purchases. Some savvy consumers literally use a deck of credit cards to take advantage of special offers. One card gets 5% back at Wal-Mart. Another gets 5% back on gasoline purchases. I'm interested in simplicity. Let me know if you find a deal better than an unlimited 2% back on all purchases.

Needless to say, your credit cards should have no annual fee. And the company should allow you at least 20 days to pay your bill before interest accrues. You should never be paying interest.

Another very helpful feature is the ability to download your purchase information electronically. Importing this data into your budget can save you time. Electronic interfaces exist for QuickBooks, mint.com or a simple spreadsheet format. Most people find keeping track of a budget too much hassle, but the right credit card can simplify the process.

Probably one of the greatest time-saving devices is being able to put all your purchases on a credit card, receive 2% cash back and then roll all those purchases into your budget once a month. With QuickBooks, so long as you have purchased from the vendor before, the software remembers how you coded past purchases and automatically assigns a category.

Some credit cards offer to extend the warranty for items you have bought using it. This may be called a warranty manager feature. Usually it doubles the free repair period for up to one year for eligible purchases. I never recommend an extended warranty, but getting a free year for no extra charge can be very worthwhile.

Finally, many credit cards are offering a feature called ShopSafe that allows you to shop online and generate a onetime-use credit card number for Internet purchases. If you worry about your credit card number being compromised on the Internet, this service will give you some additional peace of mind.

Starting with the right credit card for the right reasons will make using it properly that much easier.

Newsletter Reminder

Just wanted to notify those who currently don't get my giveaway newsletter that you may want to sign up soon. In November I'll be giving away a $50 gift card as well as three copies of Quicken. Good stuff.

If you'd like to receive the e-newsletter, sign up here.

The Biggest Barrier to Becoming Rich

I always like reading what Knight Kiplinger has to say. Why? Because 99% of the time, he and I are on the same page financially. For instance, here's a thought of his that Kiplinger's recently ran that I couldn't agree with more:

The biggest barrier to becoming rich is living like you're rich before you are. Why? Because all that discretionary spending -- the chic apartment, frequent travel and restaurant meals, consumer electronics, fancy clothes and cars -- crowds out the saving that will enable you to be rich someday.

He goes on to talk about how people spend so much on lavish lifestyles, then wonder why their net worths aren't increasing and why they can't even do the basics like save for a house. The reason is that they're spending their savings! Duh!

As I've said before, the first step to becoming rich is to spend less than you earn. If you can't do this, no matter what your income is, you won't be making any headway financially.

BTW, is anyone starting to connect the dots on this advice? Seems like a lot of reputable people are giving it out these days.

Who Doesn't Pay Taxes

I was struck by these tax numbers in a recent CNN Money piece:

In 2009, roughly 47% of households, or 71 million, will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center.

Some in that group will even get additional money from the government because they qualify for refundable tax breaks.

The ranks of those whose major federal tax burdens net out at zero -- or less -- is on the rise. The center's original 2009 estimate was 38%. That was before enactment in February of the $787 billion economic recovery package, which included a host of new or expanded tax breaks.

The vast majority of households making up to $30,000 fall into the category, as do nearly half of all households making between $30,000 and $40,000.

Nearly 22% of those making between $50,000 and $75,000 end up with no federal income tax liability or negative liability as do 9% of households with incomes between $75,000 and $100,000.

Of course, income taxes don't tell the whole story. Workers are also subject to payroll taxes, which support Social Security and Medicare.

When considering federal income taxes in combination with payroll taxes, the percent of households with a net liability of zero or less is estimated to be 24% this year, according to the Tax Policy Center's estimates.

A few thoughts here:

1. Wow. Almost half the people pay nothing to help run our federal government.

2. Yes, there are other taxes besides federal income taxes. Believe me, I know them well.

3. That said, 24% of people in the US pay absolutely nothing in any sort of tax? Really? I understand that these people are at the very lowest of income levels, but talk about a good gig financially -- getting to live in a great country, with all it's benefits, for no cost at all.

4. Are we near the end? Consider this quote by Benjamin Franklin: "When the people find they can vote themselves money, that will herald the end of the republic."

I've always found it interesting that many people pay nothing in federal taxes and yet get the same benefits (including the right to vote) as people that pay the entire tab. It's like being able to use the health club without paying any sort of fee to do so while the other members foot the bill.

I'm guessing that it's even more skewed in other countries like Canada, France, etc. that have more progressive tax systems. Anyone know if this is correct?

Update: Just found this. If 40 (or 47) million people are in poverty, that explains why they don't pay taxes, huh?

Stop Acting Rich

The other day I ran into this piece. It's about a new book by Thomas J. Stanley, one of the authors of my all-time favorite money book, The Millionaire Next Door. It's titled Stop Acting Rich. Here's a summary:

If you think that having a 5,000-square-foot McMansion means you’ve arrived financially, think again. You may be fooling the neighbors. You may be fooling yourself. But you’re certainly not fooling Thomas J. Stanley, who aims to show readers the difference between how the really rich really spend and how wannabe millionaires jeopardize their financial security by focusing so much on the appearance of wealth.

What Stanley discovers (through a special survey he used to collect the information for "Stop Acting Rich") is that rich people in general are actually frugal, driving Toyotas instead of BMWs, owning only one home instead of several. They’re not cheap, but they’re also not concerned with showing off their wealth. That’s an attitude markedly different from that of the aspirational buyers in our spendthrift culture who fork over $60 for bottles of Grey Goose vodka, $3,000 for Chanel suits and $250 for haircuts. Most of these people are merely buying into a myth that looking the part will get them the gig, as Stanley observes.

Mainly, Stanley has the good sense to suggest that, as millionaires do, we live below our means, that happiness isn’t found in having a wine cellar, or a walk-in closet or a Maserati (hard to believe, but apparently true). It seems like an all-too-easy prescription for our society of debt-addled consumers. But after reading through Stanley’s engaging anecdotes about how the other America actually lives, you may come to feel that perhaps you don’t need to impress the other guy so much. This in itself is no small thing. Your wallet will thank you. And you may end up happier.

A few thoughts on this:

1. Of course, I simply HAD to read this book, so I contacted the publisher and they sent me a copy. I can't wait to read it!

2. From this summary the book sounds like it's a re-hash of the findings in The Millionaire Next Door. If so, I bet I'll LOVE it.

3. His ideas on how real people get rich sound very familiar. :-)

Anyone out there read this book yet? What was your take on it?

Help a Reader: Asking for a Discount

Here's a comment left on my post titled Asking for Discount Nets Guy $40k, which (again) talks about how we can all save money by asking for discounts:

So this has been talked about here many times before with many people posting success stories.

I have always been skeptical of this. No one ever seems to be willing to give me a discount.

I have a recent example of exactly what almost always happens to me.

I recently purchased a ring for my wife for our anniversary at a reasonably respected jewelry (not a mall jeweler). The sales clerk asks me if there was an occasion and I told her I had an anniversary coming up (so she knows that I am probably going to buy something somewhere eventually). I picked out a ring with a sapphire (September birthstone) and then told here I wanted to browse at others and think about it and of course she is telling me about how if I come back she can't guarantee me if the ring will still be there etc etc etc. Typical sales tactic. I pay no attention to that but I try to give the impression I am still thinking about it and I ask her if that is the best price they can do. The terse answer is no, we have the best price in town because of x,y,z etc, on she goes and that’s the price no movement. I wanted the ring the hassle wasn't worth it to me so I paid the price and bought the ring.

2 weeks later I notice they have lowered their prices on most sapphire rings by about 5-8% (end of September sapphire sales probably winding down).

Now if it’s this easy to get a discount and they are willing to lower their prices only 2 weeks later (albeit probably due to some seasonal factor), why do I find no success asking for a discount 2 weeks earlier.

This is my experience every single time I have asked for a discount. I can honestly say if I ever got a discount by asking, I don't recall it.

So, do I suck at this? Do I somehow give off a vibe that says this rube will pay any price you ask? (which I won't, I have walked away from many deals because they wouldn't move on price).

What am I doing wrong or is this actually not as easy as the anecdotal stories of those who have had success with it?

Any ideas for him? Or any suggestions of "best practices" that makes the chances of success in asking for a discount better than average?

The Power of Good Enough

Here are some thoughts on the power of "good enough" from the book Make Money, Not Excuses: Wake Up, Take Charge, and Overcome Your Financial Fears Forever:

• You don't have to be perfect.

• You don't have to be the best.

• You don't have to be at the top of some class.

• You don't have to be the smartest.

• You don't have to be the winner.

• You don't have to prove yourself.

• You don't have to be better than your neighbors or your parents or your siblings or your friends.

Instead:

• You have to be good enough.

• And you have to believe that good enough is just fine.

The section goes on to explain that if you wait to act until everything is perfect, you won't take any action at all and your finances will be stuck. Or, if you spend excessive time, energy, and resources looking to be perfect (or better than everyone else -- case in point, spending boatloads of time looking fir just a bit more out of your investments), your finances will actually suffer. Instead, if you settle for "good enough" in your savings, earnings, spending and so on, you'll do very well. You'll get started sooner, save longer than most, and as a result be in far better financial condition than the vast majority of people.

This line of thinking goes along well with a theme I've been seeing in several books and articles lately: if you simply do the basics of personal finances and you do them "good enough" (you don't have to have an MBA to understand or implement the basics), you will not only be wealthier than what you would have been otherwise, but you'll be far wealthier than most people.

So what are the basics? I detailed them in How to Get Rich in Three Easy Steps. They include maximizing your career (and the earnings associated with it), keeping spending as low as possible to create the biggest possible spread between earnings and spending, and saving/investing over a long period of time. Do these things, and you'll be wealthy.

I'm an example of the "good enough" principle in action. I'm not perfect, the best, at the top of my class, the smartest or any of the other things noted in the excerpt above. But I've been good enough at a few things (the basics of personal finances) that my net worth is now far ahead of those my age and of most people in the US. And that's what this blog is about -- helping people become good enough with at least the basics so they can grow their net worth.

Beyond the basics, of course every little bit helps. More savings helps. A better investment return helps. Smart tax planning helps. And so on and so on.

But for those of you that don't have the time, energy, or willingness, rest assured that if you simply apply the basics of personal finance, your net worth will grow and you will be on your way to financial freedom.

Money Lessons from Jim Nance

If you watch even a bit of sports on TV, it's likely that you've seen announcer Jim Nance. Well, he's in the news again, this time not for his on camera ability but because he's going through a messy divorce. It's a good reminder for us all that a divorce can have a substantial negative impact on one's net worth. So you better choose wisely when you get married.

Several financial issues stood out to me from the article linked above. Namely:

• Money is part of the reason for the split: "He maintained that the marriage ended as a result of his wife's lack of support for his career and her excessive spending."
• He makes a boatload of money: "He is attempting to protect much of his $7 million plus a year earnings."
• Is it really $7 million a year he earns? This adds up to more than that: "In addition to his $3.9 million annual salary from CBS, Nantz also makes $4 million in deferred compensation, which includes money he gets as the 'voice' of Titleist golf products."

• Did I mention that divorce is costly?: "His wife is seeking alimony for herself and child support for their 15-year-old daughter, Caroline, in excess of $1.5 million a year. She also wants to keep their six bedroom, six bathroom house on Imperial Avenue in Westport."
• Who you marry will impact your career: "In 2007, Nantz said he was offered $7 million to host the CBS Early Show, but turned it down because his wife opposed it."
• More on her spending problem: "He testified that while he was traveling around the country broadcasting sporting events, his wife was home spending vast sums of money. In nine years, she spent nearly $1 million at Ed Mitchell, a high-end clothing and jewelry store in Westport."
• She appeared to keep some financial things to herself: "And Lorrie Nantz admitted she often went shopping at Ed Mitchell, which is about a mile from their home. She has two accounts there, one in the couple's name and one under her maiden name, which she said she assumed her husband knew about."
• Is she a shopoholic?: "Just last month she purchased a $12,000 necklace at the store. But she admitted she couldn't recall what it looked like. 'I think it has some sort of stone,' she testified."

I'm not blaming her for the divorce (he had a mistress, after all!), simply highlighting the money-related issues associated with this break up. What a big mess!

Again, choose very carefully who you decide to marry since that decision will have a major impact on your ability to generate wealth. I'm not saying to select a mate based only on financial issues (heaven forbid!), just recognizing that it's one major factor to consider before you take the leap into marriage.

Savings on Chicago Trip?

We're finally making our often-planned trip to Chicago soon and will be stopping by the Shedd Aquarium, the Museum of Science and Industry and either the John Hancock Building or Sears Tower. This is where I need your help. I'm looking for money saving coupons, discounts, passes, etc. I've Googled a bit and find a history of a "buy one get one free" pass to Shedd, but can't locate a current offer. Anyone have any suggestions? It's a quick trip with other (non-tourist) plans involved, so buying a City Pass or something similar isn't a cost-effective option. And we're traveling on days where the freebies they both offer are not in effect (sorry, we have to be there on certain days.)

Any ideas you can share would be helpful.

Another Case from the Clueless Files

Why are all these people from Pittsburgh? Sheesh, it gives one of my favorite places a bad name.

Anyway, here's a story about a couple that's been "hounded by debt collectors". Here's a quick review of their great personal finance decisions:

After paying about $12,000 -- using their savings and credit cards -- for the wedding and reception in May 2008, they settled into married life with $10 in the bank and thousands in debt. The weeklong honeymoon in Virginia Beach didn't seem extravagant compared with the exotic getaways in St. Lucia and Bahamas some of their friends had enjoyed.

After graduating with a bachelor's degree in liberal arts and $88,000 in private student loans, she took a job as a home health aide making between $300 to $500 every two weeks. She thought it would be temporary while she planned for the wedding.

Three years later, she's still underemployed. She has never made a full payment on her $700-a-month private student loan. Her mother makes the $160-a-month payments on a separate federal student loan.

Meanwhile, Mr. Obringer, 29, was laid off from his $64,000-a-year job in April. The couple has no health insurance, and they are $500 short each month even before buying groceries or gasoline for their cars.

In addition to the student loans, both of them have car loans of about $6,000 each. Mrs. Obringer has another $6,000 in credit card debt, and Mr. Obringer has about $5,000 in credit card debt, a $650-a-month mortgage and a $250-a-month payment on a home equity line of credit.

The piece is written as a "here's why we should feel sorry for this couple" sort of article, but when you look at the facts, they made some really poor financial decisions and are to blame for their own mess. For instance:

1. They spent $12k on the wedding and reception. I bet that money would come in handy now, wouldn't it?

2. Looks like the honeymoon in Virginia Beach was on top of that.

3. "Home health aide" and "$88,000 in private student loans" do not compute. She didn't match her expected earnings with the amount she borrowed (translation: she borrowed too much) and now she's in a world of hurt.

4. Ok, he lost his job -- that wasn't something that was his fault (probably, but who knows?) Still, if he was making $64k before, can't he find something for $40k? Seems like this would be better than doing nothing.

5. Look at all that other debt. Ugh -- there's no control here. They've been spending like wild.

In the end, I actually do feel sorry for them because they are clueless. Obviously, no one taught them the basics of personal finance and they are now suffering for it. That said, did they ever stop and think about how much they made versus how much they spent? It seems unlikely that they considered it at all until it was too late.

Best of Money Carnival Up and Running

Just a note to let you know that the latest Best of Money Carnival is now up. Congrats to all participants and especially the winning post, Quit Worrying About 80% of Your Life.

If you're a blogger and would like to be a future host, email me and let me know which date you'd like. For your effort, you'll get traffic, links, and the chance to give $1,000 to charity -- all for a minimum time commitment.

How to Become Wealthier

Here are some thoughts on how to become wealthier from the book Make Money, Not Excuses: Wake Up, Take Charge, and Overcome Your Financial Fears Forever:

If you want to get rich, if you want to be wealthier than you are today, you really need to do only four things:

• You need to make a decent living.

• You need to spend less than you make.

• You need to invest the money you don't spend so that it can work as hard for you as you're working for yourself.

• You need to protect yourself and this financial world you've built so that a disaster -- big or small -- doesn't take it all away from you.

Sounds familiar, huh? Almost exactly what I said in How to Get Rich in Three Easy Steps.

Here's what I've said in the past on the various topics noted above:

1. You need to maximize your career (and the earnings associated with it).

2. You need to keep spending as low as possible to create the biggest possible spread between earnings and spending.

3. Investing is a key part of wealth accumulation. Keys to doing well IMO are index funds and a proper asset allocation.

4. Protection for me includes life, medical, disability, homeowner's, car, and umbrella insurance.

5. The only thing I would add to the group is an element of time. Following these steps OVER TIME will make you wealthy.

And, once again, I'm struck by the following when looking at this list:

1. The number of things you have to do to become wealthy is a short list.

2. In addition, each of the steps is rather simple -- you don't need a doctorate degree to grasp what they are.

3. That said, they aren't easy because they require discipline.

A Man Skilled in His Work

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

I talk a lot about managing your career here at Free Money Finance because for most people, their career is their biggest financial asset. It's the money-making engine that helps them build a bigger net worth, and the more they can make in their chosen field, the better off financially they are (assuming they can control their spending, of course.)

But I've never written about what the Bible has to say about your career. I have talked about the value of hard work (which the Bible regularly highlights in Proverbs), but never your job/career itself. So let's talk about it now, starting with this verse:

Do you see a man skilled in his work? He will serve before kings; he will not serve before obscure men. Proverbs 22:29

A few comments on this:

1. "Skilled in his work." If you develop your career through education, experience, projects, and the like, you will become skilled at it. And when compared to non-skilled workers, I think we all know who earns the higher income.

2. "Serve before kings." If you become skilled (I call this managing/growing your career), you're going to do well. You'll progress up the company, university, hospital, or whatever it is in your field ladder until you serve for and with the top executives (modern day kings.) And if you work hard enough, develop your abilities, and catch a few breaks, you can even become one of those kings yourself. :-)

3. "Not serve before obscure men." This is what happens to people who don't manage their careers. They languish, working in dead-end jobs that they hate, making a pittance of what they'd like/could/had dreamed of. They work in obscurity -- often in harsh and difficult situations -- in mostly thankless jobs at low wages. I'm getting depressed just writing about it.

In the end, this is why you want to manage your career (become skilled in your work) -- so you can progress in your chosen field (serve before kings), make a great salary, and not spend your days floundering in a sub-par work situation (serving before obscure men.)

Why I LOVE Comcast!!!

Ok, I don't really love Comcast, but I thought that title would get more people to read this post. :-)

Anyway, there have been a few updates since we've gotten cable that I wanted to share with you all. here goes:

• So far, all my bills from Comcast have been correct and for the agreed upon amount (several people commented that I'd never get what was promised for $17 a month.) So far, I have.

• The DVR is GREAT! I can record shows (like soccer games) and then watch them in a fraction of the time they would normally take (fast forward until a goal is scored.) I can "watch" 5 to 6 games in the amount of time it would take to watch one live (note: I don't watch this many games and I do watch a game now and then live -- but it's difficult since many are not on at viewer-friendly times for US viewers.) And on regular shows, cutting out the commercials saves a ton of time as well.

• Looks like I'm going to be able to pay for the entire year's worth of cable simply through the money earned refereeing soccer this fall. I have a post coming up in November with details on how we're doing with this extra money maker.

• Here's what I REALLY love. Comcast called and left a message on our machine the other day that we now have (at no extra charge) NFL Red Zone. What's it show? Every touchdown of every game. We can watch the best plays/moments from eight games in the time it takes to watch one regular game. Click through to the site if you like to see a flavor of what's shown on Sunday. But for us, it's a great way to watch the best moments of several games without having to deal with the two-yard runs. :-)

Oh yeah, and the TV is great! Makes watching that much better.

Five Questions to Choosing a Guardian

The Ten Commandments of Financial Happiness : Feel Richer with What You've Got lists the five questions to ask to help choose a guardian for your children (listed in your will) as follows:

1. Who's on the shortlist?
2. How's their health?
3. Do they have the resources?
4. Are their values in sync with yours?
5. Are they nearby?

If you've ever gone through the process of selecting a guardian for your kids, you know it can be brutal. And let's be honest, there's probably no one you really want to give your kids to. But you have to select someone -- otherwise the state will be doing that for you if you should die before the kids reach 18.

Anyway, here's how we approached each of the questions above:

1. Our shortlist included 10 couples or so, though several of them were weeded out quickly.

2. All of our candidates were in decent health -- we didn't pick anyone over 60 either because we didn't want to risk it (though odds say they'll live long enough for our kids to get out on their own.)

3. We didn't really care about them having resources because we'll provide enough resources for the kids. But we did decide to separate the guardians from the trustee of our finances (the guardians will need to get approval of funds for the trustee to spend on our kids.)

4. The values thing is the hardest to settle. Let's be realistic, you'll need to give on something. We determined what were non-negotiables and selected accordingly.

5. Our first choice used to live near us, then they moved a year after we updated our will. Not a big deal for us, but as time passes our kids lose more and more contact with and memory of them.

In the end, we picked a primary couple and another couple as the backup if anything should happen to couple #1.

How about you? Have any of you selected guardians for your kids? Any suggestions from that experience for the rest of us?

FMF Nov Newsletter

Welcome to the November 2009 issue of the Free Money Finance e-newsletter. I love giving stuff away, and that's what this newsletter is all about!!!!

We're starting this newsletter out with a couple great offers -- one to earn you money and the other to save you money. They are:

• Earn $25 when you sign up with Lending Club (as a new member -- there's no cost to be a member.) Simply use this link, sign up, and $25 will be credited to your account. If you need more information on how you can earn money as a Lending Club investor, you can get it here. (FYI, I'm planning on investing soon and writing about my experiences on FMF.)

• Save 10% on You Need a Budget software by entering the code "freemoney" when you purchase any product there the month of November.

Giveaways

I have four newsletter exclusive giveaways this month. Prizes include:

1. One $50 SmartyPig gift card (one winner)

2. Three copies of Quicken personal finance software (three winners)

3. One copy of You Need a Budget software (one winner)

4. One Box of Books containing eight personal finance books (one winner)

Here's how these giveaways will work:

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

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

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

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

As always, the standard rules apply.

Here are the giveaway links:

• SmartyPig gift card 

• Quicken 

• You Need a Budget 

• Box of Books

Good luck!

Reminders/notices:

• If you're looking for holiday gift ideas, check out my list of great personal finance books.

• There will be no Free Money Finance giveaway newsletter in December. Enjoy your holidays!

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

Thanks for subscribing to this newsletter and good luck in the giveaways!

Win a Box of Eight Personal Finance Books!

Welcome FMF newsletter readers! Here's a chance for you to win a box of eight personal finance books (they are detailed here). FYI, some may be slightly used and/or have notes in them (these were sent to me as review copies), but most are in generally good or even new shape.

Here's how it will work:

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

2. Sometime in December, I'll select the winner at random and announce the winner on this post.

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

As always, the standard rules apply.

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

Win a Copy of You Need a Budget!

Welcome FMF newsletter readers! Here's a chance for you to win a copy of You Need a Budget personal finance software.

Here's how it will work:

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

2. Sometime in December, I'll select the winner at random and announce the winner on this post.

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

As always, the standard rules apply.

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

Win a Copy of Quicken (Three Winners Total)!

Welcome FMF newsletter readers! Here's a chance for you to win a copy of Quicken personal finance software. There will be three winners total -- two will receive Quicken Deluxe 2010 and one will get Quicken Premier 2009. All versions are for Windows.

Here's how it will work:

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

2. Sometime in December, I'll select the winners at random and announce the winners on this post.

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

As always, the standard rules apply.

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

Win $50 from SmartyPig!

Welcome FMF newsletter readers! Here's a chance for you to win a $50 gift card from SmartyPig -- given either as a credit to a current account you have with them or as credit to a new account that you'll set up.

Here's how it will work:

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

2. Sometime in December, I'll select the winner at random and announce the winner on this post.

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

As always, the standard rules apply.

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

Did You Miss the Ride Up?

Remember all the conversations we've had over the past couple years about staying invested in the market no matter what it does (assuming you have a long-term horizon) and especially when it's falling? Why is that? Because most people can't predict when it will go back up again. And of the ones that pull out halfway somewhere along the drop down, most will end up missing the big ride up.

And now we have proof of this yet again. With the Dow breaking 10,000 Wednesday, it's appropriate that we stop and take note. Who would have ever thought things would rebound this quickly? Who was smart enough to pull out of their stock investments at the last peak (or even somewhere near it) and hold cash until the bottom to reinvest? The answer to both of these questions is "almost no one."

On the other hand, who sold their stock investments this past March and put them somewhere "safe" so they wouldn't go down any more, only to miss the huge ride up that stocks have taken over the past few months? Answer: millions of people.

Yes, those that hung on had a quick ride down. But they stuck it out and most of their investments are back. And if they kept buying all the way down (and back up again), those purchases have done really, really well for them.

Of course I don't know what the stock market will do in the coming days and months. For all I know, it could drop to 7,000 over the next few weeks. But over the long term I am fairly confident that the US economy and the stocks that make it up will do well. That's why I keep invested in the market and continue buying -- because I think the stocks I purchase today will be worth a good amount more 20 years from now, I can't predict when the big jumps will happen, and I don't want to miss any part of the ride up.

Star Money Articles and Carnivals for the Week of Oct 12

For weekday updates of what I find to be some of the most interesting personal finance articles on the web, follow me on Twitter. For now, here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week and my posts that were included:

• EDITOR'S CHOICE! Best of Money Carnival - How Much is a Good Commute Worth?

• The Digerati Life loves Costco. 

• The Sun’s Financial Diary learns more about Lending Club. 

• Lazy Man and Money discusses the placebo effect. 

• FrugalDad says successful investing is not magic. 

• BripBlap tells how to build a network. 

• My Dollar Plan compares a solo 401k to a SEP IRA. 

• Money Smart Life tells about setting goals. 

• Bargain Babe gives a code for cheap Halloween costumes. 

• Smart Spending wonders if pink purchases really help fight breast cancer. 

• Carnival of Personal Finance - Why You May Not Want to Give Over the Phone 

• Festival of Frugality - 10 Ways to Save Money on Car Ownership 

• Carnival of Debt Reduction - When to Pay Off Your Mortgage

Enjoy!

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

Bond Primer: Yield vs. Total Return

The following is a guest post from Sound Mind Investing. Here's a review of SMI if you're interested. It's a basic piece (hence "a primer") but I'm sure some of you will find it very educational. And the rest of you can discuss what you think the interest rate risk is on today's bonds. Seems high to me given that interest rates are so low these days -- they can't go lower, can they?

A bond is simply an IOU. An investor lends money to a corporation or a government (federal, state, local) and in return gets the promise of regular interest payments, as well as the full return of the loan at the end of a specified period.

Bond investing carries two major risks. The first is that the business or government might run into serious financial troubles not be able to pay up. This is called "credit risk." The second risk is that you might get locked into a below-market rate of return (explained below). This is called "interest-rate risk."

When offering a bond in the marketplace, the issuer promises a certain "yield." For example, you might find a $1000 bond offered with an annual yield of 6%. In other words, that bond would pay $60 a year in interest (6% of $1,000).

But "yield" is only one aspect of what your bond investment will be worth going forward. Suppose interest rates were to fall after you make your $1,000 investment. For bondholders, that's a good thing, because when rates fall, bond prices rise (after all, you own a bond paying 6%; newer bonds might be paying only 5%). Someone may want to buy your bond so they can get a higher interest rate than currently available among new bonds.

Because your bond is in demand, let's say you can sell it after three years for $1,100. You now have a $100 capital gain. When you combine the yield and the gain you have what is called total return. This total is usually expressed in annual compounded terms.

In our example, you invested $1,000 and received back $1,280 over three years ($180 in interest payments — i.e., $60 a year — plus a $100 gain when you sold). To learn what your total return is in annual percentage terms, you ask, "What rate of growth would be required to turn $1,000 into $1,280 in three years?"

Using an online calculator that can perform time-value-of-money computations, you learn that it takes about an 8.6% per year rate of growth to do that. (In other words, if you had invested your $1,000 at 8.6% for three years, you would have had approximately $1,280 at the end of that time.)

What this means is that the 6% yield you received as you went along, plus the $100 gain at the end, made it possible to achieve a very nice 8.6% annualized total return.

But suppose interest rates rose after you bought your $1,000 bond? As a result, the bond's value dropped by $100 (this is the interest-rate risk referred to above). Now, newer bonds have a higher rate than your bond, so if you want to sell your bond, you’ll have to lower the asking price.

You don't have to sell your bond, of course, but suppose you need some cash, so after three years you sell your $1,000 bond for $900, taking a $100 loss. You would still have $180 in dividends ($60 for three years), but when you subtract the $100 loss on the price, you'd have only $80 to show for your efforts. While you thought you were earning 6% a year, it turns out you were actually netting, on average, just 2.6% per year (once the capital loss is subtracted from the yield).

As you can see, a bond's yield tells only part of the story. What you're really interested in is your eventual total return.

Being aware of the difference between yield and total return is especially important right now with interest rates being so low and the potential for inflation on the horizon (due to so much money being pumped into the system by the Fed). Inflation, or even a growing concern about future inflation, causes bond buyers to demand a higher return on their money to protect their future purchasing power. That means today's bond buyers could face significant interest-rate risk ahead.

So if you’re investing in bonds in today's climate, it's probably best to keep maturities short (1-to-3 years). Short-term bonds have much less interest-rate risk than long-term bonds.

Interesting Money Facts

This MSNBC article talks about how the recession has widened the income gab between the highest earners and the lowest ones. But what I'd like to focus on is the various facts they share in the piece including:

• Income at the top 5 percent of households — those making $180,000 or more — was 3.58 times the median income, the highest since 2006.

• The wealthiest 10 percent of Americans — those making more than $138,000 each year — earned 11.4 times the roughly $12,000 made by those living near or below the poverty line in 2008, according to newly released census figures.

• Median income fell last year from $52,163 to $50,303, wiping out a decade's worth of gains to hit the lowest level since 1997.

• Use of food stamps jumped 13 percent last year to nearly 9.8 million U.S. households, led by Louisiana, Maine and Kentucky.

• Pharr, Texas, and Flint, Mich., each had more than a third of its residents on food stamps, at 38.5 percent and 35.4 percent, respectively.

• Plano, Texas, a Dallas suburb, had the highest median income among larger cities, earning $85,003. Cleveland ranked at the bottom, at $26,731.

A few thoughts here:

• $180k gets you into the top 5% of earners and $138k gets you into the top 10%. Hmmm. Go to a top MBA school and you're already near the 10% level (even if you go to a "good" MBA school, you'll still do well). Not that this is mentioned in the article, but I thought it was interesting since my MBA has certainly worked out for me.

• Why do these pieces keep equating "wealth" to income versus net worth? Don't these writers know what they are taking about?

• Median income of $50k seems "right on" to me. I thought it used to be $40k not that long ago, but apparently, I'm wrong. Anyway, my guess is that the readers of this blog are either just starting out their careers (and thus below $50k) or well past the $50k mark (on average, of course).

• 13% of people on food stamps -- almost 10 million people. Two thoughts: 1) Wow. That's a lot of needy people. 2) Those are our taxes at work. Not sure how food stamps work but the concept of helping people to eat is a good one IMO. But I'm sure the government somehow messes it up in the administration/rules/paperwork associated with the program.

• Yikes!!! Flint is only a couple hours from my city. I knew things were bad there, but not that bad.

• I've been to Plano, nice place. I've been to Cleveland too (some family and friends live there). Not as nice, but still ok IMO (and this is coming from someone who used to live in Pittsburgh -- people there are not known to be Cleveland lovers.) :-) Strange that there's such a big difference in the two. I'm guessing the main difference is that "Cleveland" above is the city limits of Cleveland and the "Cleveland" I know/visit is in the suburbs.

Then there's this comment that I simply can't leave alone:

"No one should be surprised at the increased disparity," said Richard Freeman, an economist at Harvard University. "Unemployment hurts normal workers who do not have the golden parachutes the folks at the top have."

A few thoughts here:

1. Does everyone at Harvard hate people who earn a decent salary? Seems like I see a lot of comments along this line from them. Strange, since that university is known to turn out top-earners.

2. Other than the very highest of the high (those making millions of dollars a year), how common are "golden parachutes" for the "folks at the top"? By definition, people that make $138k are at the top (at least the top 10%). I know a ton of these people, many of which have been laid off or downsized. NONE of them got a golden parachute (the way I understand "golden".) Some did get a few months severance, but nothing I would consider "golden" like the windfalls the very high earners get when they leave or are forced out. So maybe the Harvard guy means the top get "some severance" and not the "golden parachutes" he seems to think they all receive?

3. I'm no economist (and as such, what I'm about to say is probably dead wrong) but doesn't unemployment hurt normal workers more because they tend to 1) make things and are 2) less skilled while higher paid people tend to 1) run things (like companies, departments, etc.) and are 2) more skilled -- which puts the higher paid people in a better position when consumers stop buying as much stuff? Then again, I'm probably spouting nonsense, so someone please straighten me out.

How to Earn Six Figures

For those of you interested, my most recent guest post is now availabe at Get Rich Slowly. It's titled Five Steps to Six Figures in Seven Years. Check it out if you're interested in learning how to make six figures. :-)

The Top Ten Turnoffs About Networking

The following is adapted from Make Your Contacts Count: Networking Know-how for Business And Career Success by Anne Baber and Lynne Waymon (AMACOM Books, March 2007).

Do some of the expressions that people use when they are talking about networking make you cringe? Here is a list of the Top Ten Turnoffs complied by networking experts Anne Baber and Lynne Waymon:

1. Schmoozing: This word makes networking seem so slimy and insincere! Networking is about teaching your contacts to believe in your character and competence so they want to work with you, send business your way or hire you.

2. 30-Second Commercial: Sure you want to "sell yourself" to your contact, but this phrase implies too much of a hard sell and demeans the very important interaction that takes place when you answer, “What do you do?”

3. Pick Your Brains: It makes us think of vultures coming in for the kill. We wish people would say, "I'd like to get your thoughts about something."

4. Work a Room: So depersonalizing and one-sided, this phrase sounds as if you intend to work people over and take all you can. Instead, focus on listening and showing others what they can count on you for and what kinds of opportunities to send your way.

5. Information Interview: You don’t have to make specific appointments to gather valuable information. Using state-of-the-art networking skills, you can make networking a way of life – at professional meetings, backyard barbeques, and all kinds of professional and social venues.

6. Tricks of the Trade: Let's not imply anything that smacks of manipulation. There should be no "tricks" when you network; only up-front, clear offers to be helpful to each other.

7. Favor Bank: Doing things for others is the right thing; just so they'll "owe" you one is the wrong reason. Give without strings, without expectations of getting -- that's the way to create a network that works.

8. Power Lunch: Yes, invite a powerful contact to lunch, but don't call it that. It sounds too much as if you value people just for their positions.

9. Business Card Exchange: Exchanging cards without building trust is non-productive. When you leave a networking event with 20 or 30 cards, what do you do with them? Toss 'em into the trash! Instead, listen for reasons to exchange cards. Be alert for ways to move your relationship beyond the networking event. Broadcasting your business cards makes only "cardboard connections," not real connections.

10. Important People:  Don't you hate it when you are talking with someone and that person is looking over your shoulder trying to find someone better to talk with? Give your whole attention to the person you are with. Anyone can turn out to be a valuable contact!

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What are your networking turnoffs?