Free Money Finance

Help a Reader: What to Tithe

Here's an email I recently received from a reader and it seemed especially appropriate to post it on a Sunday:

I recently decided to go off on my own full time as a self-employed individual. This started last week. Up until then, I've been a W2 employee with withholding. So I am not in a terrible rush to figure this out for my first estimated payment. I chose to go with a single member LLC with taxes passed through to me as an individual/sole proprietor. I am trying to figure out what to "take" as a "salary". In the eyes of the law all of the money coming in is "mine" so the salary is really just a way to attempt to establish a recurring budget to stick with. I know I can deduct my own payment for health insurance right off the top and I can eventually deduct 1/2 of the self-employment taxes I pay off the top. Then I'll have standard business deductions (cell phone, travel, etc.). I still find myself stuck on the salary question and that brings up a tough question on the tithe budgeting question.

Before going full time, I took home roughly $7,000 a month. I have no clue what I'll be taking home each month self-employed and I am starting out quite busy for the next 3 months so I have a good feeling I'll be able to sock some away in the business savings and I plan on making my "salary" (transfer from business account to personal account really) work out to $7,000 a month.

Here is the rub, though - that math is easy. That means I'll be "taking home" roughly $84,000 a year. With the self-employment tax, income tax, health insurance, cell phone and internet access coming out of the business account. Sort of stable with where I was. I will then be paying the self-employment tax out of the business account as well as my income tax and leaving a cushion (hopefully) in the business account to cover rough months - and occasionally draw a bonus to help pay down some debt as the business and growth allows me to do that but still know where the next couple months’ salary is coming from if I had no work for those 2 months (a business emergency fund.. one that I would like to grow over time to more months but I want to get my vehicle and some consumer debt paid as well).

So I am trying to do a budget and figure out a tithe. Today I tithe on my annual salary and give over that to a few ministries. We've been blessed in numerous ways as a result. We don't give to be blessed but He has certainly been faithful. I don't want to tithe only on the $7,000 a month draw. I also feel led to tithe on my entire income. I consider every check that comes in to me (directly or to my business which is still me) as an "increase" and I want to give the first of it to God.

But when I don't know what my income will be week by week or month by month, I am at a loss for how to budget. Part of me says "all of that money will eventually transfer from the business to you someday, so just figure out your salary - the 7,000/month plus the cost of health insurance, cable, cell phone and the monthly breakdown of tax payments to get a "rough" gross pay idea and tithe on that... but then I still have that "other money" if I have a good month that won't get tithed on until the money transfers accounts.

My fear isn't giving too much, or too little. My fear is just trying to figure out how to properly budget and allocate for it. FYI, I have an accountant who is also a Christian and I plan on bringing this up to him for our meeting in September.

What are your thoughts for him?

"Go Fishing" in the Calm Sea of Bonds

The following is a guest post from Marotta Wealth Management. FYI, I received this post a couple weeks ago. Not sure he'd offer the same advice now given what's going on with the U.S. government.

Adding bonds to an all-stock portfolio can boost returns and lower volatility, especially in choppy markets. Bonds should be a small but important part of your gone-fishing portfolio allocation.

Creating a gone-fishing portfolio begins with a top-level asset allocation. For a typical 40-year-old investor, the percentage in stable fixed-income investments would be 14.6%. The remaining 85.4% would be allocated among appreciating equity investments.

Portfolio construction begins with the most basic allocation between investments that offer a greater chance of appreciation (stocks) and those that provide portfolio stability (bonds). These decisions are the most critical in determining the overall behavior of your portfolio returns.

In the stable asset classes, you loan a company money to be paid back at a fixed rate of interest. Examples include money market, certificates of deposit (CDs) and bonds. These asset classes are like the iron rods that support a sailing ship. They don't make the ship go faster, but they do keep it from capsizing in a storm.

Investors approaching retirement should have at least five to seven years of their safe spending rate allocated to stability. For them, replenishing their allocation to stability when stocks are appreciating helps secure future years of spending.

In a more sophisticated portfolio, we would divide the allocation to stability into short money, U.S. bonds and foreign bonds. For a 14.6% stable allocation, we would put 3% in short money, 5.8% in U.S. bonds and 5.8% in foreign bonds.

Short money includes any fixed-income investment with a maturity date of two years or less, which includes money market accounts and many CDs. Short money investments are not paying a great rate of interest right now. But when interest rates rise, they will adjust quickly and be among the first investments to gain from the higher rates.

Many risk-averse investors put their money in a bank account or invest in CDs. But like any other investment, cash has its own set of risks. It is dangerous because the dollar can be devalued so the same number of dollars won't buy as much as they used to. There are good reasons to hold cash, but holding too much for too long makes it harder to grow your assets and can jeopardize your financial goals.

The second asset class, U.S. bonds, generally pays a higher interest rate the longer their duration and the worse their credit quality. But longer term bonds drop more in value when interest rates rise. And bonds whose credit rating drops lose value too because of the chance of default.

Putting money in stable instruments because you want to reduce risk only to invest in high-yield junk bonds is counterproductive. So is increasing the term of a bond when interest rates are very low. We recommend higher quality short- and intermediate-term bonds. Invest a portion of your assets in stable investments, and if you want a higher return, put the money into appreciating assets.

Foreign bonds are the third stable asset class. They can balance domestic currency values and interest rates with what's happening in the rest of the world. And they sometimes pay a higher interest rate. Foreign bonds also appreciate when the U.S. dollar is declining in value. Foreign bonds are subdivided into bonds in developed countries and bonds in the emerging markets. Like U.S. bonds, foreign bonds are categorized by quality and duration.

Over the long term, stocks outperform bonds and bonds outperform cash. Appreciating assets are essential to your portfolio. They are the engine of your retirement savings. Even in retirement, you will need enough appreciation to keep up with inflation, pay the taxes and still have some real return left over.

Fixed-income investments are much more stable than equity investments. On average, however, they only earn about 3% over inflation. With inflation at 4.5%, fixed-income investments should be paying about 7.5% on average. With the Federal Reserve holding interest rates low, fixed-income investments currently are earning below their historical averages.

But you aren't adding bonds to your allocation for their return. You are doing it to keep a portion of your assets safe when the markets drop. And when they do, you will rebalance by selling some of these safe bond investments and putting the money back into the markets.

This means you aren't all that concerned about bond yield. The appreciation side is your engine of growth. Put more money there if you want more appreciation. You also aren't interested in yield curves, inefficiencies in the yield curves or whether or not we are in a rising interest rate environment. All these are important areas where a more sophisticated portfolio management could add value. But you are specifically trying not to watch these issues. You are trying to go fishing.

The good news is that you don't have to eke every cent of yield out of your stable investments to meet your financial goals. You don't need to invest in high-yield junk bonds so long as you have a healthy allocation to appreciating equities. As a result you could invest your entire allocation to stability in a single U.S. bond index fund.

For example, the Vanguard Total Bond Market Index ETF (BND) has a low expense ratio of 0.11% and includes investment-grade corporate, U.S. Treasury, mortgage-backed and asset-backed securities with an average duration of 5.2 years and an average maturity of 7.4 years. The current yield is 0.65%, and the fund represents more than 4,900 bonds.

BND is sufficient for your gone-fishing bond allocation, but any short or intermediate relatively high-quality bond mutual fund or ETF would meet your investment needs so long as the expense ratios are low. As a second bond fund, consider adding iShares Barclays TIPS Bond ETF (TIP). It also has a relatively low expense ratio of 0.20%. And it consists entirely of Treasury Inflation-Protected Securities (TIPS).

The top-level asset allocation decision between stocks and bonds determines both the ultimate return you will receive and the volatility you will experience. Bond allocations tend to get complex as investors try to make bonds act more like stocks. Invest a little in bonds, but make them quality bonds. This strategy allows you to put a larger portion of your investments in appreciating stocks.

The purpose of a gone-fishing portfolio is to set a simple allocation for each asset class so you can sleep at night and rebalance once a year. Keep some in bonds so you have stable investments with which you can rebalance if the markets fall in value.

Reader Profile: TL

The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. I need more people to sign up! If you're enjoying this series, you need to contribute to keep it going. Ok, enough begging from me. :-)

Next in the series is FMF reader TL. He answered my questions (in red below) as follows:

Please tell us a bit about yourself.

My wife and I are both in our mid-early thirties.  We have two children that aren’t in school yet.  We are coming up on our 7th anniversary.  I work in the financial industry, and my wife is in the fitness industry.  My wife has her master’s (paid for), and I am a couple classes from finishing my MBA from a private college (work pays for it).  We both had our undergrads from state schools, and master’s from 2nd tier schools that are respected in our area.   Both of our parents helped with college, but did not cover everything.  Any college debt we had was paid off long ago.  

As far as career success, I think my wife is more successful given her industry.  It is my opinion that she became successful due to her love of fitness.  I am more average in terms of success compared to my peers, but I usually try to position myself as an expert in niche areas of the business.  This has made me more valuable and prominent while not necessarily being smarter or better than the next guy. 

I love reading anything to do with personal finance and my wife has no interest, other than to be updated occasionally on our status.  We are both fairly conservative in our spending, but are not super frugal either.  I am technically a CFP®, but do not practice or sell services to clients.  It was largely done for personal knowledge, and was not a job requirement (although work paid for it).  I generally take advantage of any and all free benefits my employer is willing to give. 

I do think we have had a little luck, but I like to think we positioned ourselves for the best opportunity to be lucky. 

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

We both work.  Staying home for either of us was not really considered, as we both love our jobs.  Also, our daycare is provided by a relative (she’s great).  However, we pay her the market rate to be fair.   Both of our incomes have steadily increased over the past several years, increasing by double digit percentages for both of us.   We both make just north of six figures.

We have 1.3 times our income in retirement savings.  We also have $100K in company stock between the two of us.  Half is vested ($50K), and the other half will vest over the next two years.  I expect continued grants in increasing amounts from both of our companies in the years to come.  I also have a small pension for a former employer that will pay $3-500 monthly for life after age 55.  I realize this may not seem like much retirement savings given the income level, but the increased income has been fairly recent (last 2-4 years).

We only have two debts.  Our home, which is barely above water, that we have 15 yrs. left at 4.375% for $300K.  Also, recently a small car loan (>$10K) that was done mainly for cash flow reasons, but it will be paid off in a month or two.  The car was needed and it’s a Honda Pilot, so it should last us a good while.  I did not want to dent the emergency fund when auto loans can be had for 3%.  Cars are my hobby, but I prefer the wife to have something newer and safer.  I usually drive vehicles that require some tinkering.  The total amount I’ve paid for labor on car repair items I could not do, or did not want to do, is maybe $500 over the last 10 years.  I have and will do major repairs, such as engine replacement.

Emergency funds sit at about 4 months of living expenses if both of us lost our jobs at the same time (unlikely).  Our home is an energy star qualified home in a good neighborhood (don’t plan to move for a long time), and energy bills are low. Daycare is our biggest expense, aside from the mortgage.  Our employers pick up the tab for cell phones and internet.  My employer also reimburses for mileage, which after expenses (gas/oil/tires), nets me about $4K a year.  At the end of the month, after all expenses, 529 contributions, 401 max, etc.  We have anywhere between $2-6K excess.  This excess has been fairly recent.  It is also what I struggle with the most (where is the best focus for it?).   Should I focus on one goal, or spread it around to many goals and let them build.  What are these goals?  Maybe a trip once a year and a newer car every 3-5yrs, that is about all I can come up with. 

College funds for the kids are well on there way.  The 2 yr. old has about $7K, and the 4 yr. old has almost $9K.  We contribute every month systematically ($200 each).  At the rate we are going, I’m not sure I want to put too much more in their 529s.  I’m not a big believer that college is the answer for everybody, so it won’t be forced, only encouraged.  I’d even consider helping them start a business if I thought the idea was sound.  Kids will go to public schools for k-12; they are excellent in our area.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

To me the biggest issue is do I start trying to pay off the house?  That seems like a big amount that would take years to accomplish, and there may be better things to do with the money given the low rate.   There are relatively few tax-advantaged areas that I know of, left to us. 

I’m concerned that our employer stock is growing too fast and becoming too big of a percentage of our asset allocation.  Anyone have experience diversifying out of the concentrated stock positions?  I’m open to suggestions. Or should I leave it, and ramp up my taxable investments to balance it out?

Another item is my parents have a family lake cabin that they want to give to my sister and me.  They no longer use it (they live next door on another property), and they want it to stay in the family rather than sell it.  It was given to them by my Dad’s parents.   What is the best way to keep it in the family, and not have spouses (or future spouses) try to force the sale in the event of a divorce?  I’ve heard establishing an LLC or something to that effect, but I’m not sure the best approach.  I may want to some money into a more substantial cabin, but it is not necessary right now (maybe 5-10 yrs from now).  My wife’s parent’s also have a year-round cabin on a lake.

I’m sure someone will suggest it, so I’ll mention that we are going to build out our emergency fund to a full years worth of expenses.  We are also set for life insurance (term), we have an umbrella policy, and health/dental/disability is covered by the employers. 

What are your plans for the future? (Retire early; build your career, etc.)?

The wife and I were talking the other night and we are really content where we are right now, and honestly the thought of retirement is kind of daunting.  I mainly want to have enough saved to give us options.  I’d like to reach the point where I have enough money that I could walk away if I needed too.  My wife will continue working/volunteering in some fashion.  I’m pretty good at wasting time, so no work for me.  Given how young our parent’s seem in their 50-60s, I’d guess retirement for me would fall in the 55-60 range.  Retiring any sooner than that would require us to really tighten down spending to generate the millions needed to be confident.  I’m not sure I want to sacrifice today for tomorrow.

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

Of course, spend less than you earn.  We tend not to sweat the details of our investments, merely a balanced allocation of mutual funds only (except company stock).  We like saving, but if there is something we want we try to make it happen.  We both despise credit, but do see its place. We tend to spend more time evaluating big purchases, but don’t worry about getting a latte if we feel like it.  We’ve never had a budget per se, all savings has come from pay yourself first mentality.

Educate yourself.  I took a personal finance class in my undergrad, and loved what was taught.  I followed that with another personal finance class at my graduate school.  They should be mandatory and not just elective.  I studied and received my CFP® designation from my employer, but anyone could do it.  It was a huge eye opener to what was out there from a larger personal finance perspective, trusts, estates, employer plans, etc.  Much of which I will never use, but that is not the point.  None of this was necessarily career driven, but more personal curiosity and wanting to be in control of my financial destiny.  I’m sure many of the readers of this blog are here for the same reason.

Star Money Articles and Carnivals for the Week of July 25

Here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week:

• Festival of Frugality
• Totally Money Blog Carnival
• Carnival of Wealth
• Get Out of Debt exposes some debt relief providers.
• Frugal Confessions likes to hack up finances.
• The College Investor says income diversity is a necessity.

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.

Your Credit Card Probably Has Several More Perks than You Know Of and Use

Forbes lists ten credit card perks you may not know as follows:

1. Car Rental Loss/Damage Insurance
2. Extended Warranties
3. Purchase Protection
4. Security from Unauthorized Purchases
5. Travel Accident Insurance
6. Trip Cancellation Insurance
7. Lost Luggage Insurance
8. Travel Emergency Assistance
9. Emergency Assistance
10. Roadside Assistance

Since I'm planning a Caribbean trip early next year, I was interested in whether or not my Chase Freedom card (currently listed as #1 on my list of best cash back credit cards) offered these benefits or not. So I emailed Chase, told them I was considering taking the card with me on a trip, and asked if the card contained any of the benefits listed above. Here's their response:

I am writing in response to your e-mail inquiring about the benefits provided by your Chase Freedom card.

The benefits provided by your card are as follows:

- LOST/STOLEN CARD REPORTING:

MasterCard, on behalf of all Issuers, will forward reports of lost or stolen cards to the appropriate card Issuers. For detailed information on this service or to use this service please call MasterCard at 1-800-MC-ASSIST (1-800-622-7747).

- EMERGENCY CARD & CASH:

You have worldwide emergency card and cash services, available 24 hours a day, 365 days a year. We work with you to arrange delivery or a convenient location for you to get your replacement card or cash. (Card Replacement requests should be handled through the Card Replacement workflow in First Assist. For Emergency Cash Request, please transfer using Speed Dial 8, to the CCU / ECR Queue in Orlando.)

- MASTER RENTAL INSURANCE COVERAGE:

Secondary benefit coverage for collision and loss damage for vehicles of a suggested retail list price of up to $50,000 when certain terms and conditions are met. Coverage is effective when you initiate and complete the entire rental transaction with your MasterCard and decline the car rental company's collision damage waiver insurance coverage. Master Rental insurance is "secondary" coverage and may pay for the outstanding deductible portion or other charges not covered by your primary automobile insurance policy, under specific terms and conditions. For more information or to file a claim, call the MC Assist Center at 1-800-MC-ASSIST (1-800-622-7747). A claim must be reported within 30 days of loss. Coverage is not available for vehicles rented in the following countries: Ireland, Israel, or Jamaica. You may be unable to receive benefits in Australia, Italy, and New Zealand. Please contact your vehicle rental agency before you travel.

- TRAVEL ASSISTANCE SERVICES:

If you need cash, MasterCard can arrange to transfer up to $5,000 from a family member, friend or business account. In addition you'll receive access to: Travel Services Medical Assistance, MasterLegal Referral Service, and MasterTrip Travel Assistance, including Lost Luggage Assistance. For more information or to use this service, call MasterCard at 1-800-MC-ASSIST (1-800-622-7747).

-EXTENDED PROTECTION:

Extended Protection doubles the repair period under the original manufacturer's written US repair warranty up to one additional year on eligible warranties of three years or less. Additional terms and conditions apply. For more information or to file a claim, call the Benefits Administrator at 1-888-320-9656 (outside the U.S. call
collect at 1-804-673-1691).

-PURCHASE PROTECTION:

Repairs, replaces, or reimburses you up to a maximum of $250 per claim for eligible items of personal property purchased entirely with your card for the first sixty (60) days from the date of purchase in the event of theft, damage or involuntary and accidental parting with property. Additional terms and conditions apply. For more information or to file a claim, call the Benefit Administrator at 1-888-320-9656 (outside the U.S. call
collect at 1-804-673-1691).

-PRICE PROTECTION:

If you buy an eligible item entirely with your card in the United States and see a printed advertisement of it for less at any retail store within sixty (60) days of the original purchase date, simply file a valid claim and you may receive a refund of the difference up to $250 per item. Additional terms and conditions apply. For more information or to file a claim, call the Benefit Administrator at 1-888-320-9656 (outside the U.S. call collect at 1-804-673-1691).

-RETURN PROTECTION:

Return Protection will reimburse you up to a maximum of $250 per item and $1,000 annually, for the cost of an eligible item of personal property purchased with your card, if you are dissatisfied with the item within sixty (60) days from the date of purchase and the retailer will not accept the return. Items must be received by the Benefit Administrator in like new/good working condition. Additional terms and conditions apply. For more information or file a claim, call the Benefit Administrator at 1-888-320-9656 (outside the U.S. call collect at 1-804-673-1691).

- MASTER ROADASSIST ROADSIDE COVERAGE:

If your car breaks down on the road in the U.S., MasterCard will send someone to the rescue. This is not only reassuring, but it may also save you money because fees for many services (jump-starts, towing, gas delivery, tire changes) are pre-negotiated. Road service fees will be automatically billed to your MasterCard account. Limitations do apply and you are responsible for charges incurred by towing facilities. Call 1-800-MC-ASSIST (1-800-622-7747) for more information.

If you are carrying the card on your trip, please provide us with your travel details that is the departure and arrival dates and the specific locations so that we can monitor your purchases.

I trust this information is of assistance to you. Thank you for contacting Chase, your trusted provider of financial services.

I have several thoughts on this:

• The benefits appear to be more from MasterCard than from Chase. Is anyone else getting that sense too?


• It's one thing to give all these benefits, but I'm guessing it's fairly hard to redeem them. Anyone successfully used these?


• Looks like they do not have the trip cancellation insurance I was looking for.


• I did not know that this card had "extended protection" for an extra year on purchases. I always gave Costco credit for adding this on electronics when it turns out I could have received this anywhere by using a MasterCard (or maybe this one is a Chase feature -- hard to tell who the "Benefit Administrator" works for).


• Price protection? Really? If that works, that's a GREAT benefit! Who of us has never seen a lower price on something after buying it elsewhere? I may have to purchase something at a high price just to try out this system and see what happens. ;-)


• I wonder how their roadside assistance compares to that of AAA.

The summary here is that credit cards seemingly have a ton of benefits that I think many people didn't know about (I didn't) and don't use (I've never used these.) Now, I wonder how easy they are to use. Anyone had any experience with any of these (or any other) "extra" credit card benefits?

Kudos to Discount Tire

A few weeks ago, our next-door neighbors had their roof re-shingled. A day later, I had two roofing nails in one tire of my Highlander (after only 14,000 miles of wear.) Who knows if the two events were related, but it seems like an awfully strange coincidence that they happened so close together. And no, I didn't say anything to the neighbors.

The nails were jammed deep into the tread, but the tire wasn't losing air (thankfully). The day after we discovered the nails, my wife took the vehicle to the nearest tire shop -- which happened to be Discount Tire.

I didn't know much about Discount Tire at that point (other than knowing the name) and assumed they would either fix the tire and charge us $20 or so or tell us that the nails were so far in that I needed a new tire completely.

My wife called from the shop and said they thought they could fix the tire. Sweet! They said it would be FREE to do so. Even sweeter!!!!! And they wanted to know if I needed my tires rotated. I actually did need it in 500 miles or so, but since my wife was there, I asked how much they would charge. They would charge nothing to do it -- again, it would be FREE! Of course, I took them up on their offer.

I had never been to Discount Tire, never bought anything from them, etc. They were not doing this to reward a good customer. Apparently, they repair flats/problem tires and rotate tires for everyone for FREE! Very cool IMO. They just moved onto my list of places to consider when I need a new set of tires (which is probably why they do free repairs and rotations.)

Since I'm the first person to complain (and quite loudly) when I have a bad experience with a company, I also want to be sure to give a shout-out to businesses when they do something right. In this case, Discount Tire did right by me and deserves a round of web applause. ;-)

Best and Worst Credit Card Issuers at Keeping You Safe

MSN Money lists the best and worst credit card issuers based on how much financial protection they offer and how well they help against potential fraud. Their list:

Best (score out of a possible 100)

1. Bank of America (87)
2. Discover (74)
3. U.S. Bank (73)
4. USAA (69)
5. Capital One (68)

Worst

1. State Farm (43)
2. Associated Bank (46)
3. SunTrust (47)
4. Cabela's WFB (48)
5. RBS (49)

Interestingly enough, I don't have cards from any companies on this list -- good or bad. But if I had one on the "bad" list, I think I'd re-consider having/using it. Yeah, there's a $50 limit on the financial damage someone can do if they steal your card, but if they somehow get into the company's system and get your personal information, a lot more damage can be done.

By the way, I didn't even know State Farm issued credit cards...

Any of you have cards issued by any of these companies?

Update on Our Shopping List, July 2011

Here's an update on where the shopping list I posted in January currently stands:

• Vacations -- We've been to see family once so far and have another trip planned in August. We've decided against the smaller vacations (the kids are getting five days with my parents in the Wisconsin Dells though) and will focus more on our Caribbean trip in January. I found a travel agent recommended by a frugal friend who cruises twice a year or so, so I think we're in good hands.


• Furniture -- We bought a new table for our "school room" and got blinds for my daughter's room. Still need a couple recliners or a second couch for the living room and perhaps a desk for my daughter's room.


• Windows -- I think we're putting this one on the back burner.


• Snowblower -- I found a place for the big snowblower and we'll be keeping it. Now the small one looks to be on the "give away" list.


• Landscaping -- We have received bids for "phase 2" (did phase 1 last year) and will be going ahead with the changes soon.


• Television -- We're not using the basement TV much, so we really don't need a new one there.


• Outside lights -- Decided that our old ones are fine -- and that the Michigan winters would quickly kill the shine on any new ones anyway. So why bother?


• Attic insulation -- Not sure this is going to happen.


• Monitor -- Got a new, larger monitor for the main computer most of the family uses.


• Tablet -- Thinking of getting an iPad or other tablet, but not sure which one is "best." Waiting for the dust to settle in the tablet wars before I decide.


• Repair -- We need repair work done below our fireplace where water got in and rotted some wood. Also have considered getting an updated fireplace unit (old one is 20 years old) but am not sure what we'll do.

I think that's it, but as you can see, the list is kind of a moving target as we decide we don't need certain things and do need others.

How about you? What major purchases do you have planned for the rest of 2011?

Let's Get a Little Perspective on Saving on Gas

Here's part of a comment on my post titled Are You a GasBuddy? that made a whole lot of sense to me:

Not to take this totally off-topic, but there are a few things about low gas price strategies such as GasBuddy that are especially true with gas closer to $4 than they are at $2:

1) It doesn't make sense to make much if any detour from your set route to chase after a lower price. At $3.60/gallon and 20 mpg, you're spending 18¢/mile on gas plus another 5¢/mile on other wear-and-tear on your car. If you need to make a five-mile detour to save 10¢/gallon...you've spent $1.05 (and time) for the privilege of saving $1.30 on the 13 gallons you've put in your tank.

2) It also doesn't make sense (in hot summer weather) to sit in line in your idling car with the A/C running to save 3¢/gallon vs. what the empty station across the street is charging--yet I see it all the time. An idling car running A/C uses approximately 1.5 gallons/hour. At $3.60/gallon, that's 9¢/minute. Wait five minutes for your turn at the pump, and you've just spent 45¢ to save yourself a whopping 39¢ on your 13-gallon fillup.

I know people who brag about driving 15 minutes (round trip) to "save big" on gas -- 10 cents per gallon in some cases. This seems like a big savings, but apply the math above and you'll see it's not much of a savings at all (if any) -- ESPECIALLY if you factor in your time! Even if there were no costs associated with driving to a place out of your way (like the cost of gas there and back as well as the wear-and-tear on the car), is it really a good trade to save $1.30 for 15 minutes of your time? That equates to $5.20 per hour, and personally my time is WAY more valuable than that.

Of course, if two stations are close to each other and you're in the area, choose the cheaper one. Or if you know you're going to be in an area in a few days anyway and there's a cheaper station there, plan to get gas then (we do this all the time when we know we'll be heading to shop at Costco in a day or two -- they almost always have the cheapest gas around.) But don't drive way out of your way to "save big" on gas. The savings really aren't that significant.

BTW, a better deal is simply to use a high-level cash back rewards credit card. The Chase Freedom card is offering 5% cash back on gas purchases in July, August, and September. 5% on $4 is 20 cents savings per gallon!

7 Things Car Dealers Want You to Buy

Yahoo lists seven things car dealers want you to buy. It's a list of things dealers try to add-on to the purchase of new cars (once you've decided on the car), then an evaluation of each to determine whether it's a good deal or not. Here's their list:

• Fabric Protection. VERDICT: Skip. A cheaper way to protect your interior: buy Scotch-Guard for around $5.


• Extended Warranty. VERDICT: Consider ... at a later date.


• VIN Etching. VERDICT: Skip. "You can probably get it done yourself for around $25."


• Gap Insurance. VERDICT: Consider


• Paint Protection. VERDICT: Skip


• Credit Insurance. VERDICT: Skip


• Driver-Installed Alarm Service. VERDICT: Skip (unless you store valuables in your trunk)

Here's what I get out of this article: skip all the add-ons they try to sell you once you've decided you want the car. Why? Because you either don't need them or you can get them cheaper elsewhere. Pretty simple advice IMO.

As for the two items above that they say "consider" I say:

• Buy a highly-rated, reliable car (Consumer Reports) that should last a long time without major repairs and you shouldn't need the extended warranty.


• Buy a car for CASH and you won't even have to think of gap insurance.

This last time I bought a car (nine months ago), the dealer didn't try to add anything on. I think I had pushed him so low on price so often that he was worn out and simply wanted to get the deal done. ;-)

But when I bought my Forester eight years ago, I came in to pick up the car and the guy tried to add everything -- rust proofing, "ad fees" (dealerships pay them to advertise -- like I want to pay for being advertised to -- he said they allocate a fee to every car sold, I said, "not mine."), fabric protection, and on and on. I paid the price we agreed on, added nothing, and took my car.

Anyone else ever have a dealer try to add-on items to a car you've decided to buy?

People Abusing $1 Gold Coin Purchase Program; Program Eliminated

Over two years ago I suggested that people could make some extra cash (through credit card rewards programs) by buying money from the US Mint. Since shipping was free, you would charge $1,000 to have $1,000 sent to you.  If you had a 2% cash back card, you pocketed an extra $20 for your trouble. Then you could simply take the coins to the bank and deposit them (if you wanted -- I never did).

Now, multiply the above transaction by 10 or even 100. Yes, you could purchase $100,000 (if your cards had enough limit) in coins, deposit the $100k in your bank, and net $2,000 extra, a ton of airline miles, or whatever reward your credit card had to offer. Now do that a few times a year and you're doing quite nicely.

Of course, this process didn't really serve the intentions of the US Mint because all it did was move the coins from their vaults back to their vaults (eventually). They wanted the coins to get into circulation. So a year or so ago they put limits on how many of the coins people could buy and made it clear on their site that the purchases were only for coins meant to be circulated.

Still, these measures did not work. NPR recently did a story on the problem and it looks like some people are still abusing the system. As a result, the US Mint just stopped the program. I'm sorry to see it go.

I've been a big purchaser of $1 gold coins through the years, probably buying $10,000 or so along the way. But I've been using the coins (here's my last post on what I've been doing) and circulating them all (I probably have $2,000 still in my possession). They make GREAT gifts, especially when placed in a nice small "treasure chest" purchased at Hobby Lobby. Every single time we've given one of these away we get back the comment that giving them was "very creative" and that the recipient loved it (the last recipient of a coin gift box asked us how in the world we got so many of them anyway.) ;-) In short, it's a fun way to give cash versus simply dollars in a card or a gift card.

That said, it appears that those who like the coins are in the minority. They simply aren't popular to most Americans. I admit they are difficult to carry around and I do not use them on a daily basis. I do keep $100 or so in the coin tray in my car for tolls, car washes, small purchases like candy before a movie and the like, but to carry $10 or so around every day would make me sound like a cowboy walking around with spurs (jingle, jangle.) So I don't see these becoming mainstream anytime soon. This is quite fine with me since the novelty of getting them as a gift will stay with us for some time. But my stash will only last so long and, after that, I guess the fun is over.

RIP US $1 gold coins...

Why Do We All Hate Annuities?

The combination of a couple posts on annuities has had me thinking the past few days and I thought I'd share it all with you.

Let's start with Smart Money's suggestion that retirees should have fewer stocks and more annuities as follows:

Fewer stocks, more annuities. That, in essence, is the advice gleaned from two just-published reports for the benefit of those living in or approaching retirement.

Retirees should invest just 5% to 25% of their portfolios in stocks, or at least that's the case for those whose primary goal is to minimize the risk of running out of money and sustaining their withdrawals, said one report published by Putnam Investments new think tank.

And, Americans can avoid the risk of outliving their assets by saving more, working longer, investing wisely, delaying Social Security and buying a life annuity, according the Government Accountability Office (GAO).

A few thoughts on these:

• I know Putnam offers investing products, but do they sell annuities as well? Interesting if they don't since they'd be telling people to do LESS business with their company.


• "Saving more" -- something most people should be doing and the best way (IMO) of getting your retirement nest egg to where it needs to be.


• "Working longer" -- not something you can count on (what if you can't physically work longer)?


• "Investing wisely" -- easier said than done, though index funds offer a pretty good option for anyone.


• "Delaying Social Security" -- depends on how long you think you will live (I know, hard to determine).


• "Buying a life annuity" -- the topic of conversation today.

The heart of the issue is that annuities offer guaranteed income while stocks may go up or may go down and are thus not dependable for a steady stream of income -- something many retirees need and/or MUST have.

That's the same issue the NY Times recently discussed when it wrote on the annuity puzzle. The quandary is this: when given the option of steady income but with no ownership control of the underlying assets or a variable income that could go way up or could go way down but still be within the control of the owner, most people pick the steady income. But when it comes to practice, most opt for stocks over annuities -- they choose the risk over the guaranteed income.

Why is this? Basically, it's because Americans hate annuities. Yes, there's much more to it than that, but that's the bottom-line IMO. Some thoughts from the Times:

There are other explanations for the unpopularity of annuities, but I think two are especially important. The first is that buying one can be scary and complicated. Workers have become accustomed to having their employers narrow their set of choices to a manageable few, whether in their 401(k) plans or in their choice of health and life insurance providers. By contrast, very few 401(k)’s offer a specific annuity option that has been blessed by the company’s human resources department. Shopping for an annuity with hundreds of thousands of dollars at stake can be daunting, even for an economist.

The second problem is more psychological. Rather than viewing an annuity as providing insurance in the event that one lives past 85 or 90, most people seem to consider buying an annuity as a gamble, in which one has to live a certain number of years just to break even. But, as the example of Dave and Ron shows, it’s is the decision to self-manage your retirement wealth that is the risky one.

The most complex and unknowable part of that risk is in predicting how long you will live. Even if there are no medical advances in the coming years, according to the Social Security Administration, a man turning 65 now has almost a 20 percent chance of living to 90, and a woman at this age has nearly a one-third chance. This means that a husband who retires when his wife is 65 ought to include in his plans a one-third chance that his wife will live for 25 more years. (A “joint and survivor” annuity that pays until both members of a couple die is the only way I know for those who are not wealthy to confidently solve this problem.)

My take on these thoughts:

• Buying an annuity is certainly complicated. And there seems to be so much fine print. Are you comfortable forking over $500,000 while signing a document with 15 pages of 5-point font? I know I'm not really excited about it.


• Many who sell annuities aren't the trustworthy types. Many are "slick" insurance salesmen who you get the sense are just out to rip you off. I think these people have turned many off of annuities.


• Fees don't help either. There's a perception that annuities are expensive and have lots of fees. Compared to investing in stocks, they are and do. But they also provide a service/safety that stocks don't. Besides, the real comparison is the "value" they offer, not how their costs compare to those of stocks. If they offer what you want for less than what you can do it for yourself, they are a worthwhile purchase, correct?


• There are legitimate issues with the solvency of the issuing company. You don't want to fork over a boatload of money that goes bankrupt several years down the road. And picking the most solid of the solid companies isn't any sort of guarantee. Ten years ago no one would have thought AIG would have had the trouble they have had the past few years. And with insurance-company-killers like Hurricane Katrina and the tsunami in Japan seemingly on the rise, is anything completely safe with an insurance company?


• Americans certainly like to be in control of things, and annuities force you to give up control.


• There is certainly a case for the psychological argument. Maybe annuities inherently seem like a gamble that most people will never win.


• Perhaps it's the "death by a thousand cuts" problem. I mean, look at all of the reasons I've been able to list for why people may hate annuities. At some point, there are simply so many negatives that people probably just think there's no way it's worth all the trouble and potential problems.

I'm not sure what I'll eventually do with annuities -- whether I'll get one (or more) or try to go it the do-it-yourself route. One thing that will give me some flexibility is that I'll likely have much more saved than I'll need for income, giving me a bit more freedom to decide whether or not an annuity is the right move for me.

And if I do decide to go the annuity route, I will probably consider laddering them (including going with different companies for different annuities) as part of my overall strategy.

What's your take on the issue? Do annuities get an unfair bad rap or is the bad rap deserved? Anyone out there decided for or against annuities? Why do you think this way?

Thoughts on Negotiating Remotely for a Car

CNN Money says the following about how to save when buying a new car:

Negotiate remotely. Haggling in person is a losing proposition; the more experienced negotiator will inevitably come out on top. To take back the upper hand, hop on to one of two new sites: carwoo.com or zag.com.

Both allow you to find price quotes without revealing any contact info before negotiations. The dealers know you'll see their prices displayed alongside others, so they have an incentive to go straight to their lowest offer. And they're required, by agreement with the sites, to abide by it.

Zag.com is free to consumers, but dealers must pay a commission to the site if a sale is made, which means fewer participate (5,000 nationwide). Plus, you're not guaranteed a price on a car with every feature you want.

Carwoo.com, on the other hand, will cost you a one-time $49. For that you get a better version of a real dealership experience, where you haggle for a price on the exact vehicle you want that's sitting there on the lot.

A few thoughts here:

• I agree. Negotiating for a new car remotely can save you both time and money. I've done it three times now in the past several years and have always gotten a great deal. For specifics of what I do, see Buying a Car Using the Web and My Simple Car Email. You can also get a few extra details from My Recent New Car Purchase.


• The downsides of Zag.com seem that many dealerships aren't participating and the ones that are have to pay a fee if they get a sale. This is money you KNOW they are factoring into the price of the car. Why not go direct and get that money yourself (in the form of a price reduction)?


• And why pay (even $49 for Carwoo.com) for a service? Seems unnecessary to me. And I don't want to bid just on cars sitting there on their lot. I want to list what I want and have them go after it (most likely at another dealer) -- so I get what I want.


• You can let dealers know they are competing against each other (as I do in my email) so they'll be as aggressive as possible. As such, these services don't offer any advantages in this area IMO.


• I had a dealer try to sell me a car on their lot versus one I wanted (it had all the features I requested, it was just a different color.) I told them I'd take it for $500 below the lowest price I got from another dealer on the car I wanted. They declined. :-)


• I used a couple sites (I believe Consumers Report and Edmunds) to get price quotes in my last process (in addition to sending out my own emails), but they were both higher than what I could get on my own going directly. I'm guessing the above two would yield higher prices too if for no other reason that someone is paying a middleman -- and more fees equals higher cost.

Anyone had success using a car buying service?

The Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, What Would You Do with a Million Dollars?

Enjoy!

Your Insurance May Cover More than You Think It Does

Remember the story of my friend who put gasoline into his diesel engine? Since then, the story got worse for him. The gas had penetrated most of his fuel system to the point where he needed an additional $4,000 in repairs. Ugh. That's a HUGE amount. But the car was only a couple years old, so he had to go ahead with it.

On a whim, he called his insurance company to see if they would offer any help. They said they would cover the whole thing, less his deductible. Pretty cool for him, huh?

I asked him why this was when the problem was something he caused. He said he asked them and they said:

• They cover many situations when you do something that harms your car and is completely your fault (for lack of paying attention or whatever.) For example, if you back your car into a pole, they'll cover the repair. Same goes for the situation where you put gasoline into a diesel engine.


• They cover lots of things that most people assume they don't. People simply fail to ask if they do and thus miss many of the benefits of their insurance.

A few thoughts on this from me:

• I would never in a million years think that they would cover something as blatant as putting gas into a diesel engine. Shows what I know.


• Like mom used to say, "it never hurts to ask."


• In many (most?) cases, it's not worth making a claim. If you do something that costs $200 to repair, it's probably better IMO to simply pay for it. The hit to your premiums will likely be more than the benefit you gain.


• That said, if the cost is very high, go ahead and claim it. Sure, my friend's premiums will likely go up, but they can afford to go up a ton since he's getting way over $4,000 (the new cost PLUS the cost of work he had done previously). It will take a long time for premium increases to cover that amount.

Anyone out there ever had a problem they thought would never be covered by insurance but it turned out to be covered?

Use All Resources to Advance God’s Kingdom

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

The following is an excerpt from The Root of Riches.

The Bible never condemns wealth; it only warns or condemns when money is gained through evil or used for foolish purposes.

Like any organization, Crown Financial Ministries looks for honest men to serve in our missions around the world. It hasn’t always easy to find them. Eventually, our continent leader in Africa developed a method to determine who should join our organization. He calls it the “Money Test” and it works like this.

When someone expresses interest in joining Crown’s mission, the leader arranges a phone call and asks the candidate to submit a budget for launching the ministry in the candidate’s country.

After reviewing the budget, the leader will say that he wants to fly out to meet in person for an interview and that he is sending a few hundred dollars in advance for expenses. He asks the candidate to keep receipts for how the money is used.

Later, after the face-to-face interview is completed, the leader asks for the receipts. In almost every case, receipts are produced showing the money was spent on hotel rooms, meals and other expenses related to the visit. The interview concludes.

Unbeknownst to the candidate, the leader then stays an extra day in that country contacting hotels, restaurants and car rental companies to ask about their rates. All too often, the receipts indicate costs higher than the actual rates, indicating they’ve been falsified and the difference was pocketed by the prospective new hire.

Candidates who fail this small “Money Test” lose their opportunity for the far greater reward of a long-term job.

I believe God gives each one of us a “Money Test.” He advances resources to us and will demand an accounting of how we spend the money. He is only interested in one question: Did you use money for your own interests or His?

So if you have not been trustworthy in handling worldly wealth, who will trust you with true riches? Luke 16:11

To those who pass the “Money Test,” the long- term rewards are defined as the true riches. These are the blessings of living according to God’s financial principles and enjoying both the present and eternal rewards for faithfulness to Him. These are the riches that cannot be lost, stolen or destroyed in contrast to
mere worldly wealth.

The blessing of the Lord makes rich, and He adds no sorrow with it. Proverbs 10:22 (ESV)

"Go Fishing" with Hard Asset Stocks

The following is a guest post from Marotta Wealth Management.

Hard assets have been one of the most significant asset classes over the last decade. From all indications, it will continue to be a critically important investment category to protect your portfolio from the effects of inflation and the continuing devaluation of the U.S. dollar.

Creating a gone-fishing portfolio begins with a top-level asset allocation. For a typical 40-year-old investor, the percentage in hard asset stock investments would be 17.0%.

Diversifying your portfolio will help lower your risk and increase your returns. One of the asset classes we use to achieve that goal consists of hard asset stocks. These hard asset investments include companies that own and produce an underlying natural resource. Examples of these natural resources include oil, natural gas, precious metals (particularly gold and silver); base metals such as copper and nickel; and other resources such as diamonds, coal, lumber and even water. We recommend broadly diversifying your hard asset stocks by resource type, by geographic location of a company's reserves and by company size.

Investing in hard asset stocks is not the same as investing directly in commodities. Buying gold bullion or a gold futures contract is an investment directly in raw commodities or their volatility. Buying a gold mining company, in contrast, is a hard asset stock investment.

The S&P North American Natural Resources Index tracks hard assets. It consists of 62% energy and 15% metals and mining. These top-10 stocks represent about 43% of its holdings: Chevron, Exxon Mobil, Schlumberger, ConocoPhillips, Occidental Petroleum, Suncor, Freeport-McMoRan Copper, Apache, Barrick Gold and Halliburton.

We segment hard asset stocks like these into their own asset class because they have a unique set of characteristics. First, the movement of hard asset stocks is generally less correlated with the movement of other asset classes such as bonds. Second, hard assets have a unique (and positive) reaction to inflationary pressures. And third, at certain periods in the longer term economic cycle, including hard assets helps boost returns.

As of the end of May 2011, this index was up 12.76% year-to-date compared with the S&P 500's 5.92%. Its five-year annualized return is 9.72% compared with the S&P 500's 2.62. Beating the S&P 500 by more than 7% for the past five years is just one of the benefits of investing in this index.

The beauty of hard asset stocks is that they are not highly correlated to other categories. Most importantly, the correlation between the S&P North American Natural Resources Index and the Lehman Aggregate Bond Index over the past year was -0.28. A negative correlation means that the bond asset class and the natural resources asset class are often moving in opposite directions. Balancing a bond portfolio with hard asset stocks can help hedge the risk that inflation poses to a bond portfolio.

Over time, dollars lose their buying power and the goods and services we buy cost more. As an asset class, commodities generally maintain their buying power in dollar terms. Stocks as an asset class generally appreciate over inflation after dividends are factored in. And over the past decade, hard asset stocks have been appreciating nicely.

Because of inflation, cash, normally a safe store of value, has been the riskiest investment since 2002 when the U.S. dollar began losing much of its purchasing power. Since then, the U.S. Dollar Index has dropped more than 37%, from 120 to 74.7. It has also dropped more than 76% against gold as gold appreciated from 360 to 1536. The dollar has even dropped 37% against the euro as the euro appreciated from 0.90 to 1.43.

During inflationary times, U.S. bonds are not a safe store of value either. They pay a fixed rate of return in diminishing dollars. But a little bit of hard asset stocks helps balance the fixed-income portion of your portfolio.
The simplest allocation to hard assets would put 100% of your hard asset allocation in the iShares S&P North American Natural Resources Sector Index ETF (IGE) that tracks this index. It has a low expense ratio of 0.48% and represents more than 150 holdings.

A slightly more sophisticated hard asset allocation might put 60% in IGE, 30% in Vanguard REIT Index ETF (VNQ) and the last 10% in the iShares S&P Global Materials Sector Index ETF (MXI). If your allocation to hard assets was 17%, this would result in investing 10.2% in IGE, 5.1% in VNQ and 1.7% in MXI.

VNQ seeks to track the performance of the MSCI US REIT Index. It has an extremely low expense ratio of 0.12%, and its correlation to IGE was a relatively low 0.66 over the past year. It has more than 100 holdings. It was up 28.5% last year and is up an additional 14.1% year-to-date. Vanguard’s new fund, VNQI, tracks the foreign REIT index. We are considering adding this as well into the mix of hard assets.

MXI seeks to track the performance of the S&P Global Materials Index. Its correlation to IGE over the past year was a relatively low 0.78. It includes foreign mining companies such as Australia's BHP Billiton and Rio Tinto, Brazil's Vale, Germany's BASF, Canada's Potash Corp and the United Kingdom's Anglo American. The expense ratio is only 0.48%, and holdings number more than 120.

These two holdings should broaden your allocation to hard assets by including more REITs and mining and therefore provide additional rebalancing bonuses.

The purpose of a gone-fishing portfolio is to set a simple allocation for each asset class so you have time to visit some of these countries and enjoy the fishing. Include a hard asset stock allocation and rebalance each year.

FMF Aug Newsletter

Welcome to the August 2011 issue of the Free Money Finance e-newsletter!!!!!!

Newsletter Giveaways

I have three newsletter exclusive giveaways this month. 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 and follow the directions there. Prizes include:

1. Box of Books

2. Mvelopes Premier membership

3. $50 SmartyPig gift card 

Good luck!

Win an Mvelopes Membership!

Welcome FMF newsletter readers! Here's a chance for you to win a free Mvelopes membership.

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. In a week or so, 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 Box of Books!

Welcome FMF newsletter readers! Here's a chance for you to win a box of personal finance books (the books included are here).

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. In a week or so, 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 $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. In a week or so, 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!

Reader Profile: JM

The following is the latest post on my new "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. I need more people to sign up! If you're enjoying this series, you need to contribute to keep it going. Ok, enough begging from me. :-)

Next in the series is FMF reader JM. She answered my questions (in red below) as follows:

Please tell us a bit about yourself.

I'm female, 23 years old, married, no children.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

My husband and I both work and our total annual salary is about $120k.  We recently moved from a lower cost-of-living area to a higher cost-of-living area due to my husband's job transfer, as well as wanting to move close to family and friends.  Our salaries went up by about $20k total, which covers the cost-of-living increases for the necessities.  We have no debt.

My husband and I keep separate bank accounts.  It wasn't really a conscious decision on our part; it just kind of ended up that way.  I pay him half the rent and utilities every month, and he pays all of those bills from his account.  We take turns paying for food and other items we purchase, but we don't keep a running total.  We still think of it as "our" money even though we have separate accounts.  It has worked out very well for us, as we don't keep any secrets and are both pretty frugal with our money.  If anyone makes a "big" purchase, it is discussed first.  Usually it's not really a big deal as "big" purchases for us are usually only a couple hundred dollars at most and are relatively few and far between.  I'm sure this will change once we own our own home, though.

What are the current financial issues you're facing (saving, paying off debt, etc.)?

Our primary current issue is saving as much money as possible for a big down payment on our first house.  We opted to rent for a year upon moving because we didn't know where my eventual job would be located.  We will easily be able to afford a 20% down payment with our savings, but we want to put as much possible down, get a 30-year mortgage for "insurance" purposes in case one of us loses our job, and pay down as much as possible every month that is left after emergency fund and retirement savings.  Both of us are very debt-averse.  We plan on buying a house well within our means, meaning something that we could easily afford even if one of us unexpectedly got fired or had to stop working for whatever reason.  We hope to pay off the house within 10 years of purchase.  We currently have around $100k in savings, which is kind of a "community" account for all savings, including the eventual down payment and emergency savings.  I'd estimate at least $50k of this will go towards a down payment on the house, and the rest will stay in savings.

I have maxed out my Roth IRA since I started working after college and have a bit over $16k in it.  I am currently ineligible to contribute to my company's 401(k) as I just got this job, but I will start as soon as I am eligible for the company match. My husband has around $40k in his company 401(k) and contributes enough to get the full company match.  I am trying to get him to contribute to a Roth IRA as well, but have been unsuccessful.  My husband is more interested in helping his mother pay down her mortgage so that she can retire.  She is older than the general retirement age and still works full time.  He has contributed several thousand dollars in lump payments over the years to the mortgage.  A good chunk of his income after all necessities are paid for is devoted to this.  His mother has willed him the amount of the mortgage he has paid, plus 1/3 of the remainder of the house's value (he has two siblings that will get the other 2/3).  I am ok with this; until the mortgage has been paid off, I am willing to allow him to do this instead of contributing to the Roth, as long as he still contributes to the 401(k).  His mother has always been very good to him.

We are not too concerned about retirement at this point, as we are young and are already contributing a good amount of our earnings.  Our main concern is getting our house and paying it off as fast as possible.  Once we have paid that off, we will pump even more into retirement and general savings.

What are your plans for the future. (retire early, build your career, etc.)?

My husband and I are both "work to live," not live to work.  We'd love to retire early, but we don't have a set goal at this point.  We plan on retiring out of the country at this point.  Current thoughts on countries include Japan (where my husband's relatives are), Canada, or somewhere in the European Union.  Those places have cost of living at least as high as the US, if not more, so this is a fairly lofty goal.  We are not against doing semi-retirement and I'm sure at least one of us will end up doing semi-retirement.  I'm pretty sure I would lose my mind quickly if I didn't have at least a part-time job!

What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

Communication is key in any financial relationship.  My husband and I decided early on in our relationship, well before we were married, to keep all lines of communication open and to be as honest as possible.  This philosophy extends into our finances and it has worked beautifully.  We never fight about money.  Sometimes we have talks about money and we'll disagree about certain things (like my husband putting money into an IRA of his own), but it's never a battle.  You really can't have a good relationship, financial or otherwise, with a spouse or significant other if you aren't willing to be open.

Star Money Articles and Carnivals for the Week of July 18

I just updated my list of the best cash back credit cards to include suggestions by readers. Also check out my listings of the best credit card deals and bonuses and the latest credit card offers and deals if you're interested.

Now here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week:

• Wise Bread says not to buy these used.
• The Simple Dollar compares home laundry to laundromats.
• Consumerist tells of an older worker looking for a job.
• My Dollar Plan shows how much people spend on bad habits.
• Money Smart Life suggests low-cost hotels.
• The Digerati Life traded in her day job.
• The Sun’s Financial Diary suggests some frugal kid fun.
• Lazy Man and Money gives thoughts on Netflix's pricing changes.
• FrugalDad offers frugal vacation ideas.
• BripBlap discusses emotional finance.
• Festival of Frugality at Roth IRA.
• Carnival of Wealth

And for those of you interested (which probably isn't many), I've joined the Yakezie Members Challenge.

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.

Why Insurance Agents Prefer to Sell Whole Life Policies

The July issue of Money Magazine details the financial incentive an insurance agent has to sell you a whole life insurance policy versus a term life policy. They list the advisor's cut of the premiums on a $500,000 policy as follows:

• Whole life -- $5,250 upfront plus $113 per year for years 2-10 equals $6,263 total


• Term life -- $540 upfront and total

Same policy value but over 11 times the commission. Of course there are additional benefits to the whole life policy too, so you would expect it to cost you more. But still -- 11 times more????? Wow. No wonder there are so many advocates for whole life policies in the insurance world.

Then again, term life policies aren't always the best choice are they?

Thoughts? Comments?

Simple and Effective Investment Advice

I read this piece while on a plane recently and was pleasantly surprised to see a money "expert" be so basic and down-to-earth with his advice. Here's what I especially liked about what Andrew Tobias said:

Tobias's core advice -- spread your bets, keep your costs low, but before you do anything in the market, save every nickel you can -- has held up through six revisions [of his book], the latest of which came out this year.

Couldn't agree more. After all, didn't I say that the amount of time you invest and the amount saved are far more important than return rate? He's giving the same basic, simple, and effective advice.

The interview goes on:

What do you mean when you say that after a certain point, it doesn't help to know more about investing?

If you're using more complex strategies, that implies active trading. Transactions have costs. There are brokerage commissions. You have the spread. And then you have taxes if the trade's not in a tax-free account. Plus, you are competing with folks who are very smart. You may be smart too, but most people can't compete with the Wharton graduates who do this full-time.

Again, I agree 100%. This is why I invest like I do.

And finally:

The market's every bit as hard to outwit as ever -- you can have faith in that. So I still prefer index funds: With their low fees and terrific tax efficiency, index funds are like horses with 20-pound jockeys running against horses with 200- and 300- and 400-pound jockeys.

I detailed these thoughts (and more) when I wrote about the beauty of index funds.

I didn't know a lot about Tobias up until now. I had heard his name, of course, but didn't know what he wrote about or anything about his money philosophy. But now I've found a new "expert" to like and I'm even tempted to buy his book. Then again, I'm pretty sure I know what it says -- and that I already put the principles into practice. ;-)

Is Now the Time to Buy a Vacation Home?

US News lists five crazy money ideas that just might work. #1 on the list caught my attention. Here it is:

Buy a vacation home as soon as possible.

Casey Weade, a vice president of Howard Bailey Financial and a certified financial planner, says young people in their twenties and thirties should not only buy a first home, but should also consider buying a second home. As long as a young person is otherwise debt-free and on top of their finances, he argues that a second home can serve as a forced savings vehicle, a kid-friendly vacation spot, and a retirement home down the road.

"If you're in a neat area, then you can rent it when you're not there and let the place pay for itself," he says. Weade, who is moving to North Carolina, plans to take his own advice and look for a vacation home near the beach.

The downside: If your expenses go up or you lose your job, a second home is the last thing you want on the books. Also, rental income isn't guaranteed, and hidden costs from extra insurance to unexpected repairs abound.

In my mind, it would be great to own a vacation home in paradise. As they say, it would not only serve as a vacation spot now, but also as a retirement home later. And prices have to be at rock-bottom levels now, don't they?

Then again, having two homes is quite expensive. You need maintenance on two places, insurance on two places, and on and on -- not to mention the cash drain buying a second home would put on your retirement savings. If a vacation home sold for $300,000, just think how many extra years you'd have to work to afford it. That $300k might be better placed in your retirement fund, allowing you to retire five to ten years earlier than without it.

What's your take? Anyone out there have a vacation home? Do you like it? Why or why not?

10 Most Expensive Pet Health Problems

Money Talks News lists what they call the 10 most expensive pet health problems. I'm not sure if this list is really the ten most expensive or the ten most common (they do rank them by the number of occurrences) pet health problems that cost more than $1,000. The reason I say this is because I've seen/read about/known many people who have had claims for many thousands of dollars (for cancer treatments or transplants, for example.) Perhaps the difference between these and what I've seen is that what people often quote are total costs for treating a disease while the items listed below are single treatments that could be part of a series to get rid of a disease/problem. Anyway, here's the list along with the average cost per claim:

1. Torn knee ligament/cartilage - $1,578
2. Intestinal – foreign object - $1,967
3. Stomach – foreign object - $1,502
4. Intervertebral disc disease - $3,282
5. Stomach torsion/bloat - $2,509
6. Broken leg (plate) - $1,586
7. Laryngeal paralysis - $2,042
8. Tumor of the throat - $1,677
9. Ear canal surgery - $1,285
10. Ruptured bile duct - $2,245

No matter what the numbers actually mean, the conclusion is clear: there's potentially a $1,000 to $2,000 expense lurking around the corner for almost any pet owner. As a result, my advice is to bump up your emergency fund accordingly when you get a pet so you can cover any unforeseen large expenses easily without having to go into debt.

Would You Get Plastic Surgery to Improve Your Career?

Here's an interesting question:

Would you ever get plastic surgery in order to grow/improve/benefit your career?

Think it's a strange question? Not really. Consider the following:

• Looks like many people are making a few physical changes with plastic surgery to improve their job prospects. The article notes that "much of [the increase in] business is coming from men over the age of 55 who are concerned about keeping their jobs."


• Let's face it, physical attributes matter when it comes to career success. I'm not saying I like it. I'm not saying it's fair. I'm just saying it's a fact of life.


• While plastic surgery can be expensive, the cost is dwarfed by the amount you can gain if your career takes off. One bonus and the surgery is paid for! Remember that your career is your most valuable financial asset and is worth millions of dollars. So the cost of plastic surgery could be seen as more of an investment than an expense.

So, the question remains: would you ever get plastic surgery in order to grow/improve/benefit your career?

One Key Advantage of a Roth IRA

In looking at Wikipedia's 401(k) IRA matrix that compares the benefits of a traditional IRA, a Roth IRA, a 401k and a Roth 401k, the following stands out as a BIG advantage of the Roth IRA:

Forced Distributions: None. This is a huge advantage for Roth IRAs within estate planning.

They're right -- this is a gigantic advantage for a Roth IRA over all the other options. FYI, the others force distributions at 70½. But with a Roth you can let the money sit and grow forever -- like until you die. Then the money can be used to pay your estate taxes (if you have any -- hopefully you've planned to minimize those as well.)

That said, this huge advantage is most likely to benefit those with high net worths who have large estates. And a great way to get a large estate is to make lots of money. But here's the catch: the Roth IRA limits the income you can make and still have a Roth. The income limit details:

Based on MAGI (modified adjusted gross income); Single: full contrib up to $105k, partial contrib to $120k; Married: full contrib up to $167k, partial contrib to $177k; Can't contrib > annual taxable compensation

So if you make over $177k, you're hosed -- no Roth for you! That said, $177k is a fairly high income, so if you make $150k, you can still have a Roth and it's quite possible to build a sizeable nest egg (and use the Roth for estate planning purposes.) All I'm saying is that those making $500k aren't socking huge amounts away in a Roth to help with estate taxes.

Anyone out there using a Roth IRA primarily because there are no forced distributions?

How to Protect Yourself if You Use a Debit Card

We've already covered why I like credit cards more than debit cards and one of the reasons is financial security. But now that I joined a credit union to get a high-interest checking account, I HAVE to use a debit card for 10 transactions per month. So I'm looking for the safest way to use a debit card -- and Clark Howard happened to recently share his thoughts on how to protect yourself if you use a debit card. The details:

If you are someone who would be financially devastated if your bank account were emptied, I suggest you open a second account and tie your debit card to it. Then fund the second account only with money that's used for debit card activity, so your principal account won't be at risk in the event of a breach. That's the best way I know to protect yourself.

To me, this plan:

• Seems like it would work.


• Seems like it would be a huge hassle to set up and manage.


• Seems like it would get me interest only on the relatively small amount (otherwise, why bother?) I'd have in the debit card account -- which is contrary to my strategy in the first place (which is to get the 4% interest on a decent-sized balance.)

So my questions to you debit card users are as follows:

• Does anyone do anything like this?


• Is it really that big of a deal? If you're careful do you really have any sort of security issues?


• Anyone ever had their debit card stolen? What happened?

Shopping for a Cruise

I've written previously that I'm thinking of taking our family on a Caribbean cruise this winter to get out of the tundra the world calls "Michigan". I thought I'd give you all an update on my recent progress. (By the way, it seems very strange to be planning a cruise to get awy from the cold when it's 90 degrees and muggy outside today.)

I started by talking to a friend who is both a regular cruiser (he and his wife have been on about 20 cruises the past ten years or so) as well as frugal minded (he and I often share money saving tips and I know we both have the same "no debt" philosophy.) He gave me lots if great advice and answered all my questions about the differences in one cruise line and another, what type of cabins to get, how to travel, and many more.

He also shared the name of his local travel agent with me. His deal with her is that he'll identify a cruise and then search for the best price he can get. If she can match that, he books with her. If not, he books elsewhere. I decided to do the same and started out by doing my research.

Once I identified the cruise I wanted (where it went, what cruise line, the date, the cabin we wanted, etc. -- BTW, I'll give the details of the cruise in a later post), I looked at several places online for prices. Sites I considered were Cruises.com, Priceline, Kayak, Travelocity, Expedia, American Express, the cruiseline's own site, and Costco. Here's what I found (by the way, all fees, taxes, etc. were included in all these offers):

• Many of the sites had the exact same prices (to the penny.) These included Priceline, Kayak, Expedia, American Express, and the cruiseline's site. They all had a $100 onboard credit as well (except the cruiseline's own site, which only had $50), so they were all truly equal.


• Cruises.com was $20 cheaper than all the ones above and it appeared that they MIGHT have a $250 onboard credit available. I say "might" because it wasn't clear (many of the sites seem to make it purposefully cloudy what the deal is exactly to, IMO, make it more difficult to compare prices.)


• Travelocity didn't have the date available that I wanted, but the next closest date with the same line was a couple hundred dollars more expensive.


• Costco was almost $300 cheaper than Cruises.com plus had a $100 onboard credit. I think we have a winner. (BTW, I had asked my cruiser friend if he had ever used Costco, and he replied that he hadn't since he wasn't a member there.)

With this information in hand, I called the travel agent. Her prices were the same as the first group noted above. She was surprised, as was I, and said she should be able to get the best price as an agent. She told me she'd call the cruiseline directly and see what their explanation was. She called me back 10 minutes later saying she couldn't touch the Costco deal and the explanation simply was that they had probably done a group deal and/or could accept a lower margin -- thus they had lower prices. So she thanked me for calling her but said I had a better deal.

As a next step, I went to CruiseCompete.com and opened an account. The site is designed to have travel agents compete and bid for your business, so you can get the lowest price. I filled out a request for bids, putting in what I'd already received from Costco and asking anyone if they could beat it. I got five responses. Four were higher prices than Costco (so much for reading my guidelines) and one was just spot on (higher price but higher onboard credit.) They also noted not to book elsewhere until I had called them, indicating that perhaps they could do even better. That was two days ago and as of this time, I'm not sure if I'll call them or not. After all, I know/trust Costco and I don't know this agency at all (though they seem highly rated by the site.) Is it worth the risk for $100 or so in savings?

I also have a bit of legwork left to do. I need to call American Express and see if my TrueEarnings card gets me free travel insurance (I heard Amex has this on all their cards). I also caught wind of an extra bonus when you pay for a cruise with an Amex card, so I need to get to the bottom of this too.

For now I wanted to share my progress as well as ask for your thoughts/comments -- is there anything I'm missing or should consider before I take the plunge and book?

Make All Your Money Work as Hard as Possible

Somehow I stumbled on Early Retirement Extreme's series of posts on how he became financially independent in five years (a very interesting read -- the gist is to live on 10% to 40% of what you make and save/invest the difference). In the last part of the series, he makes this comment:

One important lesson was that if you have $100,000 and a ROI of 5%, then spending 20 hours figuring out how to increase ROI from 5% to 6% is worth $1000 or $50 an hour. I was certainly not getting paid $50/hour in my day job. This meant that dealing with investments was now more profitable than my job, economically speaking. I decided that since I had saved the assets, I should learn how to invest them.

He goes on to tell how he then started to learn about investing so that he could maximize the return on his assets.

I have a few thoughts on what he has to say as follows:

• This "1% difference" is a compelling point, especially when looked at over time. For instance, $100,000 at 5% over 40 years leaves you with $704k. If you simply bump up the return rate to 6%, you get over $1 million after 40 years.


• Though return rate is important, the impact of the savings is driven more by the time and amount invested than by the return rate. If you add $2,000 extra savings per year to the $100k noted above at 6% you end up with over $1.3 million over 40 years. And if you save more than $2,000 a year (which most people can), you can end up with an even bigger nest egg.


• You can control the amount you save and the amount of time you save for much more than you can the return rate you get. So your first actions in making the most of your investments are to take these steps. Once you have these set, then you can focus on eeking out that extra 1% (if you dare.)


• The extra 1% return rate, while significant, isn't that easy to reach. Think of it this way, professional money manager who can consistently beat their competition by 1% are the best money managers in the world. More often the difference between "the best" and "the rest" is fractions of 1%.


• 1% saved in expenses is the same as 1% earned in extra return. Which would you rather have: an investment with 2% costs and a 10% return or one with 1% costs and 9% return? Wouldn't matter, right, since both return 8% in the end.


• Saved expenses are more reliable than extra earnings. Said another way, lower costs are GUARANTEED returns whereas "making better investments" to earn more may or may not pan out. This is one of the main reasons I invest using index funds -- their costs are so low that their net returns (gross returns less costs/expenses) beat most actively managed funds over the long term.


• All this said, I haven't made the most of my portfolio the past few years. We saved a good amount in cash when we were looking to buy a new house since we wanted to pay cash for it. Over a few years I had put together a nice house fund (while still fully funding my 401k, FYI). But once we decided not to buy, it took a while for me to reallocate those funds, so I probably had a couple years where I missed getting a good return on a decent-sized amount of savings. Shame on me. I've since mostly corrected this problem (I'm still trying to reach a balance of what should be kept in cash and what should be invested), but I certainly left money on the table for two years (though they were turbulent years for the market, so who knows what would have ultimately happened.)


• To me, the point about the extra 1% is less about literally earning an extra 1% on your investments and more about this: make sure all your money, whatever its purpose (emergency fund, college savings, retirement savings, etc.), is working as hard as possible for you because that extra amount you may earn by managing it correctly can be significant. This post is a reminder of this fact for all of us -- me included.

Any extra thoughts to add that I missed?

Another TV Show that Teaches Personal Finances

Here's another program to add to my list of TV shows that teach personal finance: Pawn Stars. Here are the details on the show:

• Shown on the History Channel.


• The basic premise: people bring their (theoretically) valuable items into a pawn store where the items are reviewed and then a price (usually for sale, not to be pawned) is negotiated if the store is interested. The items can be anything but are usually of at least modest interest (like historical documents, movie props, all sorts of collectibles, and so on.) Think of it as an Antiques Roadshow where a purchase is made.


• The shop is owned by a father (aka "Old Man") and son, Rick. Rick is the main character on the show and his son, Corey, also works at the store. Corey's friend, Chumlee (think Tennessee Tuxedo) provides comic relief.


• The shop is based in Las Vegas.


• Many times something will come in and the owners don't know if it's real, how valuable it is, etc. That's when they call in an expert to authenticate the item and estimate its value.


• Once an estimated retail value is set (either by and expert or the store's owners -- based on their knowledge of past selling prices), a negotiation takes place to set a purchase price. The store always wants it below retail (of course) so they can sell it at retail. The seller usually comes in wanting retail price but quickly learns that's not the way it works.

Here's what the show teaches:

• How to negotiate. There's a back-and-forth for almost every item and our kids see how to and how NOT to negotiate effectively.


• There's a difference between wholesale cost and retail cost. We talk about how the two work, and our kids have a pretty good idea of it now. We sometimes stop the DVR once we hear the retail price from the expert and try to estimate what we thing the selling price is.


• How to be stupid with money. You wouldn't believe the number of people who say they are selling an item so they can "hit the crap tables" in Vegas. Ugh. Obviously, we talk to our kids about why this is not a great use for your money.


• (Not finance related.) We also learn a good bit of history. The show often goes into detail over historical documents, artifacts, etc. which contains a good amount of history. I guess this part is the one reason for the show to be shown on the History Channel.

Anyone else watch Pawn Stars? What do you think of it?

25 Documents You Need Before You Die

The Wall Street Journal lists 25 documents you need before you die as follows (FYI, the piece is not written as a list, so I had to try and pull out the 25 items. Not sure I got them all, but here's what I came up with):

• An original will
• A revocable living trust
• A "letter of instruction"
• Durable financial power-of-attorney form
• Documentation of housing and land ownership, cemetery plots, vehicles, stock certificates and savings bonds; any partnership or corporate operating agreements; and a list of brokerage and escrow mortgage accounts.
• Documents that list loans you have made to others
• List of any debts you owe to avoid surprising your family.
• Most recent three years of tax returns available
• A list of all accounts and online log-in information
• Safe-deposit boxes you own
• Durable health-care power-of-attorney form.
• Authorization to Release Protected Healthcare Information form.
• A living will detailing your wishes.
• Copies of life-insurance policies
• A list of pensions, annuities, individual retirement accounts and 401(k)s for your spouse and children.
• Your marriage license
• The distribution sheet listing bank-account numbers that accompanied the settlement
• A copy of the most recent child-support payment order
• Copy of the "qualified domestic-relations order"

I'm in the process of writing down everything I know about our finances (what accounts we have, the account numbers, passwords, etc.) and then putting that document and all our other important papers in one spot so it's easy on my wife should anything happen to me. Let me tell you, it's quite an ordeal. Do you know how much financial information you can collect over the decades? And we have the stuff all over the place -- in file cabinets, in a lock box, on computers, etc. Ugh. It's quite a project to put all this stuff in one location.

My plan is that once I get this all together I'll update it once a year. Then again, it may take me a few years to get it all together. ;-)

Is there anyone reading this that has gone through the process of doing all this? Any tips that might help the rest of us?

The Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, Freedom 55 Is Just A Dream.

Enjoy!

The Cost of Being a Bridesmaid

Here's an update on an issue we've covered before -- the cost of being a bridesmaid. A summary of the situation from CNN:

After adding up the cost of the dress, accessories, travel expenses, wedding gifts and more, WeddingChannel.com found that it costs about $1,695 to be a bridesmaid. The estimate was based on a 2010 Real Weddings study that surveyed more than 20,000 brides nationwide.

The highest expenses include travel to the wedding, shower and bachelorette party, which each can cost an average of $300.

Really? $1,700? Is this really "average" or is it inflated (like the "average" costs of weddings) by the high-end side of the sample? Any of you ladies care to comment?

Here's a better idea. Let's say you want to have four bridesmaids. Instead of having them each shell out $1,700, suggest that you save them $700 by having each of them simply give you $1,000. They save money and you get $4k!!!! Ka-ching!!!

Ok, I'm guessing most people wouldn't like the suggestion, but still, it's an option. ;-)

Seriously, has anyone spent close to (or over!)? $1,700 to be a bridesmaid in one wedding? And for the rest of you, are there any money saving tips you have for decreasing the cost of being a bridesmaid?

Save a Portion of All Your Earnings

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

The following is an excerpt from The Root of Riches.

We must take care when saving money because it can be either good or evil, depending on the motive.

On the one hand, it’s wise to save money for the future:

The wise man saves for the future, but the foolish man spends whatever he gets. Proverbs 21:20 (TLB)

On the other hand, the Bible makes it clear we are not to rely on money as a substitute for our dependence on God.

Yes, a person is a fool to store up earthly wealth but not have a rich relationship with God. Luke 12:21 (NLT)

The practice of saving money varies widely by culture. I have been in African villages where saving money is nonexistent. Instead of money, these villagers view their relationships with family and neighbors as a form of savings and protection against future needs. While we might be tempted to judge them harshly for not saving, we are advised to respect the poor for being “rich in faith.” Often, they have no other options but to trust God for their daily bread.

I have also taught in Asian cities where the average personal saving rate is 30% or more of their annual income. They have a high degree of discipline and control that enables them to store for the future. Often this drive is from what they describe as a “survival instinct.”

Does the one culture practice wasteful spending and the other hoarding? We should be careful not to condemn or endorse either group without knowing their true motive for saving or not saving money.

Wasteful spending presumes that God will always provide for us even if we fail to do our part. Hoarding, on the other hand, presumes that we are “on our own” and that God will not keep His promise to provide for our needs. Both must be avoided.

We must have financial surplus to meet unplanned expenses and to share with others in need. However, it’s also important to avoid growing dependent on money alone. Perceived financial “independence” can in reality be a hidden form of financial dependence, relying on money instead of God. Hebrews 13:5 should govern our attitude about financial surplus, regardless of the amount we save.

Keep your lives free from the love of money and be content with what you have, because God has said, “Never will I leave you; never will I forsake you.”

The implication here is that money will leave you and forsake you. God is making it known that money alone as a form of security is unreliable and that we are to trust Him to provide.

Gold: A Misunderstood Metal

The following is a guest post by MasterPo.

With the remarkable rise in the price of gold over the last 2 years (as of writing this – in spite of the recent pull back) as well as the apparent uncertainties, even declines, in more traditional icons of American economic prowess the yellow metal has once again come to the forefront of interest by both preppers and individual investors. Add to that the boom in ETFs (Exchange Traded Funds) and it seems like “gold for the masses” is the order of the day. Consequently almost every preparation blog, book, and podcast devotes quite a bit of time discussing the use of gold (and silver) in a SHTF or TEOTWAWKI event.

And most of them get it wrong.

In terms of preparing for an economic disaster they misunderstand the role of gold (and silver) in a preparation plan. In fact, one of the main arguments against buying gold – that being you can’t eat it - is closer to the real understanding of the purpose of the metal in a survival plan.

Trade?

Barter?

Maybe.

But the primary purpose of owning physical gold is not as a “universal currency” for if/when the dollar collapses. MasterPo highly doubt the supermarket will be accepting gold coins for groceries no matter what the American economy does. That is not to say some form of exchange or barter for gold won’t happen. It surely will. But that isn’t the main reason for owning gold.

The primary purpose for having physical gold is as a store of wealth in shaky economic times. Period.

It is true that if some calamity befell the entire world gold would probably be useless compared to more basic human needs like food. But the likelihood of such a worldwide disaster really is low. It would take something like a nuclear war or asteroid hit or other cataclysmic event for such to come to pass. A massive economic reorganization is a far more likely scenario in terms of national or global calamities. And as such, gold (and silver) will still be of value in whatever new currency systems come out from the aftermath.

And it is true that gold can go down just as easily as any other investment. Though to this argument I ask: For gold to return well below the $1,000/oz level the dollar would need to soar and the economy to grow soooooo much as to be unrealistic. In the longer term maybe. But not today, tomorrow, and not likely next week.

The exact value of that gold after such an economic event is unknown. But it will surely be far more than whatever the prevailing paper fiat currency is (was) just prior to the event. And that is its function: To store wealth for conversion into a more exchangeable form later.

If you are fortunate there may even be an opportunity to grow your wealth through gold ownership in the times of trouble. But that too should be seen as an alternate benefit of owning gold and not the primary reason.

History proves that physical gold is a viable means of storing wealth when transitioning from one economic reality to another. Far better than whatever paper currency is the normal at the time. The gold mined by the ancient Egyptians, Mayans, Greeks etc still holds value today. Even without the historical context, just melted down it has a high value as a metal.

MasterPo is not suggesting you should be selling everything you have and buy gold. Certainly if it’s a matter of paying the mortgage or buying a gold coin, pay the mortgage first! The future is not at all certain, in spite of recent national and global events. But just as you may be compiling stores of personal supplies, a store of gold or silver is important too so long as you understand the main purpose and not have unrealistic expectations of what you are buying it for.

Ideas for Cheap Summer Vacations

Money Talks News suggests visiting your state capitol as a great way to take an inexpensive summer vacation. It's not a tip I've thought of, but now that they mention it, it might be worth it for us to take a day-trip to Lansing to see what the capitol building has to offer.

This post got me thinking -- what else could we do if we had to cut vacation costs (within reason) this year/ Here's my list:

• Go to the beach. Lake Michigan is only 45 minutes away and for a few dollars to park (or free if you want to walk a bit), it's a very cheap "vacation."


• Hit the pool. It costs $2 per adult and $1.25 for a student to visit our local pool. Not real vacation stuff, but better than sitting at home.


• Trips around the state. We've done this everywhere we've lived -- Pennsylvania, Tennessee, and Michigan. Every state has something close that is interesting and can be a fairly cheap one- to three-day vacation.


• Amusement parks. If you have one close and can control the food/other spending, these are not bad options for saving money. We have Michigan's Adventure not that far away.


• Botanical gardens and the like. Many places have "free days" in the summer. Or if you belong to one as a member (which we do), you can stop by to see the new exhibits.


• Free concerts. Seems like the summers bring these out in droves. Not close to a vacation, though, but could be combined with a couple other things for a fun day or two.


• Nearby cities. For us, Chicago and Detroit are both three hours away, so they are easily within driving distance. Visiting them is more expensive than hanging around home, but less expensive (of course) than a big trip across the country.


• Visiting family. This is our cheap vacation favorite. We go see each side of the family at least once every year (and then some come to visit us too.) Yes, we pay for gas, but room and board (mostly) is free or only part of the cost, so it makes for a very inexpensive vacation.

Here's what we're planning vacation-wise in the next year:

• Visiting family in Pennsylvania at the start of August.


• Potentially taking a trip to Chicago in the fall -- if it works out with some work travel I have planned.


• Our big Caribbean cruise sometime in January. I'll keep you posted as we get more details.

How about you? Anyone have some tips for saving money on vacation?

Carnivals for the Week of July 11

For those of you interested, I just added a list of the latest credit card offers and deal. Currently up are offers featuring two free flights on Southwest and $150 on Restaurant.com certificates.

Now here are some of the carnivals Free Money Finance was in this week:

• Festival of Frugality
• Carnival of Personal Finance
• Carnival of Wealth

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.

Six Steps to Cut Pet Costs

In the August issue of Consumer Reports magazine they list six steps to curb pet costs as follows:

1. Don't pay a premium for "premium" pet food. If your pet needs special food (and most don't) shop around as you would for anything else to get the best price.

2. Consider new options for flea and tick protection. A patent on a major flea and tick ingredient has just expired, so costs of these products should be coming down dramatically.

3. Comparison shop for your pet's veterinary care.

4. Don't automatically get pet medicines from the vet.

5. Think twice before you buy pet health insurance. Key quote: "We analyzed policies marketed by insurers representing roughly 90 percent of the pet insurance market. None would have reimbursed more than the premiums they charged for a basically healthy dog over a 10-year life span. When we added several hypothetical chronic conditions, of the policies had positive returns. Only when we looked at extreme and uncommon situations involving two very sick cats did all the policies pay out more than what we paid in."

6. Take simple steps now to prevent costly problems. Brush your dog's teeth, get animals spayed/neutered, don't overfeed, and keep shots current.

Here's my take on these:

• Numbers 1-4 seem to be all the same, basic point to me: shop around, you will likely find a better price somewhere besides the place most people buy these items.


• I'm not a fan of pet insurance, but the CR comment does leave room for improvement IMO. For instance, many dogs live past 10 years-old, and it's the last year or two where the really big costs hit. In addition, the reason you buy insurance of any kind is to cover "extreme and uncommon situations." So what's the issue? That said, CR does recommend simply increasing your emergency fund to cover for potential pet health problems, which is advice I agree with as well.


• Brush your dog's teeth? Ugh.


• They also list some stats in the article that I found interesting: "Americans spent more than $48 billion on pet products and services last year ($20 billion on food alone). That's almost $10 billion more than we spent in sporting-goods stores ($39 billion) and three times as much as we spent in bookstores ($16 billion)."

Anyone else have any pet-related cost savings ideas?

The Latest Wedding Trend: Giving to Charity

Here's an interesting trend I didn't know was starting to pick up momentum. From Smart Money:

When Prince William and Kate Middleton got married in March, the royal couple asked that their wedding guests donate to charity instead of giving them presents. In the eight weeks since the wedding, the couple's Royal Charitable Gift Fund has raised a whopping $1.7 million -- and inspired untold copycats.

Charitable donations have become the hot wedding gift this season -- and not just for the jet set. A growing number of newlyweds asking for donations in lieu of gifts and cash, and more couples are also giving to charities on behalf of the wedding guests. According to a recent survey by the San Francisco-based I Do Foundation, a non-profit that helps newlyweds raise money for charity, nearly $760,000 in wedding donations were made to charity in 2010, a 5% increase over the previous year. Meanwhile, almost one in 10 couples now donate to charity for their guests in lieu of wedding favors, double the amount that did so a decade ago, according to researcher IBISWorld.

Why all the goodwill? Experts say couples, on average, are older and wealthier when they get married, meaning they don't need those new place settings or extra cash to help pay for the wedding.

I gotta say that I LOVE, LOVE, LOVE this idea. What better way to celebrate your "special day" than to also help others who are in great need? It's a wonderful trend IMO.

BTW, I didn't know William and Kate started the recent spurt, but it's cool that they did. Makes me like them even more.

If couples wanted to take it up a notch, they could do a matching gift challenge -- they could set aside some money and say they would match it dollar for dollar based on what their guests gave. For instance, instead of spending $30,000 on a wedding (which is close to average these days in the U.S.), what if the numbers worked out something like this:

• $5,000 -- Spent on the wedding


• $5,000 -- Put up as a matching gift for a charity. For every dollar, up to $5,000, that guests would give to charity, the couple will match it.


• $20,000 -- Saved for a downpayment on a nice house.

There, that's better now, isn't it? ;-)

Don't worry, I don't think this trend will take off and I don't even necessarily think it should. After all, people are entitled to celebrate how they want for a once in a lifetime (hopefully) event. But I'm just offering up and idea for consideration. Perhaps an engaged couple will stumble on this post, take it to heart, and use their special day to not only celebrate a life-long commitment, but to also help those who are in desperate need of assistance.

What are Your Three Best Financial Moves?

The other day I was thinking about the key events in my life that helped me the most in developing a high net worth. After considering all of the issues, I came up with the following as the three most important or "best" money moves I've made in my life:

1. Went to graduate school and got an MBA.

2. Married a frugal woman who is of the same mindset I am when it comes to handing money.

3. Read and applied principles from The Millionaire Next Door soon after it came out.

There are others factors, of course, and on any given day I might have one of them replace one of these. But for today, I think the list above contains the three best financial moves I've made in my life.

How about you? If you had to list your three best financial moves, what would they be?

How Working Women Can Earn an Extra $500k

Here's an interesting finding from LearnVest:

According to a recent study from the Tilburg Institute for Behavioral Economics Research in the Netherlands, women who kept their maiden names were perceived to be more “independent, intelligent, ambitious and competent” than their married-name or hyphenated-name counterparts. In fact, when study participants had to give a hypothetical salary amount to one versus the other, maiden-named women were valued at about $1,172.36 more per month. Over a lifetime, that adds up to more than $500,000.

So, women with maiden names are perceived to be more competent and intelligent while those with married names are perceived to be more caring and emotional. Interesting.

The rest of the post goes on to evaluate the research and the findings, trying to decide whether or not they are correct. In the end the article reaches an "it could be true" conclusion and gives the following advice:

• Keep your maiden name, even if just in a professional setting–hey, if it isn’t a major issue, it can’t hurt.


• Don’t plaster your cubicle with a zillion photos of your kids, friends and cute furry animals (just put up a few tasteful ones–keep the rest on your phone).

I'm not sure what to think about this, but if it doesn't hurt, why not keep your maiden name? Anyone have any strong feelings one way or the other on this one?

Great Savings Weapon: Storage Space

When we looked at our current home we noticed that it had an extra large pantry (roughly the size of a decent walk-in closet -- bigger than most half-bathrooms I've seen) full of floor-to-ceiling shelving. We wondered how we would ever use all that space. 12 years later and we're wondering how we could ever live in another place without a giant-sized pantry.

Anyway, as I was reading a piece the other day about how to save money by buying in bulk, it occurred to me what a wonderful savings weapon our pantry was. After all, one of the main rules of buying in bulk is to be sure you have adequate storage space for your bulk purchases. And our pantry is just the right size for storing lots of items (toilet paper, cereal, chips, nuts, condiments, canned goods, and on and on) that we buy now and use over the next few weeks and months.

So, what's a big pantry worth? A few hundred dollars a year? Probably. If we estimate that the pantry saves us $250 per year, then it's saved us $3,000 over the time that we've lived there. Not bad at all.

In the same way, our downstairs freezer allows us to buy meat, ice cream, frozen juice, and so on in bulk when they are on sale, then store them for future use. We probably save more using the freezer versus the pantry since meat can be a HUGE cost unless you buy it on sale.

Do you take advantage of storage space in your home to save money? If so, where is it and how do you use it?

10 Ways to Waste Money on a Car

Yahoo lists 10 ways we all can waste money on a car as follows:

1. Changing oil every 3,000 miles.
2. Using premium fuel unnecessarily.
3. Failing to change your air filter.
4. Failing to check the brake pads.
5. Buying mileage-boosting additives and devices.
6. Tune-ups for your engine or air conditioning.
7. Changing coolant.
8. Ignoring your check-engine light.
9. Buying expensive performance tires.
10. Paying for built-in navigation.

My take on these:

• My oil gets changed every 10,000 miles because I have synthetic oil. At $25 a pop (I usually pay less than this anyway), I will only pay $250 over 100k miles. If I changed my oil every 3,000 miles, the cost would be $825. Big difference.


• I NEVER use premium fuel.


• I follow my owner's manual on all replacement/checks including air filter, brakes, tune-ups, coolant, etc.


• I don't buy mileage-boosting additives and devices. These don't really work, do they?


• I do NOT ignore my check-engine light. I have had it go off only a couple times in my driving lifetime, but I always get it checked right away. BTW, Toyota wanted to charge us $100 recently for a "diagnostic" when the check engine light went off in my wife's car. We took it to an auto parts center instead, they did it for free, and we found out the issue was that the gas cap wasn't screwed on tight enough. We tightened it up and the light went off.


• I buy my tires based on safety and reliability.


• Why does anyone need built-in navigation when a phone can do the job? ;-)

In general, I buy a new car and then stick to the owner's manual for all services, checks, and so on. As long as you do this, you'll spend only what you need to on your car, right?

Are You a GasBuddy?

Anyone here a member of GasBuddy? I joined about a couple months ago, soon after I got my new phone (they have an app) and gas went well over $4 per gallon here. Ever since I've been a relatively active member of the site and refer to it often when I wonder how gas prices are trending.

For those of you who don't know, members of GasBuddy (I can't find a number for them, but for some reason 5 million members sticks in my head -- I could be WAY off) report gasoline prices (via web, phone, etc.) at gas stations around the country. Then all other members can check out prices when they are in need of gas and pick the closest station with a decent price. You can find stations by typing in a zip code or city name and up pops a map with stations and prices showing or you can set your "favorites" (I have a list of stations in my area that I generally go to) and see them all with the push of a button.

For reporting prices, posting on forums, taking weekly polls, and maybe a couple other tasks, members earn points which can then be redeemed to win a weekly $250 gas card giveaway. Given the vast number of members and the amount of points you need to have a realistic chance of winning, the chances of winning are rather slim, so don't join simply for that benefit. ;-)

I report on gas prices almost daily. I have two stations that I drive by each morning to work and then back by again at night. I'll usually report their prices (via phone) each time I pass them. The previous prices I see are never more than several hours old (they are usually 3-4 hours old -- 12 or so at the oldest), so I know there are others in my area who are also reporting regularly on prices at these stations.

The experience has been quite enlightening for me. I never have been one to really watch gas prices (when you need gas, you need gas, no matter the price, right?), but I have been lately since I've started GasBuddy. And I've come to a few conclusions:

• Costco most often has the best gas prices in our area. No surprise here since I think most people know that club stores generally have good gas prices.


• That said, there are often short periods of time (usually a few hours) when prices are falling that some stations can be equal to (or even better than) Costco's prices. But that usually corrects itself rather quickly and Costco again becomes lower than the rest.


• Two stations I thought had decent prices in my area actually have higher/average prices in the area. Now that I know this, I'm not as "locked in" to buying gas at these places.


• Gas prices certainly go up a lot faster than they go down. They seem to jump up while they take their sweet time as they fall. The exception to this is Costco. It appears that they drop prices faster and raise them slower than others. There have been times in my market when the other stations have gone up 20 cents quickly and Costco has lingered for a day or two -- creating a 30-cent per gallon difference (and this is with recently updated info for all the stations, so it's a fair comparison.)


• The emails GasBuddy sends out to warn you of a price increase coming to your market are worthless. I've received emails saying prices were going up in 48 hours only to find they are up NOW. Their "warning" emails are more like "the price has already increased" emails in my experience.

So, anyone else out there a GasBuddy? Anything I missed (I'm sure I did skip something -- I'm not a hard core user) about the site?

Free Credit Alerts from Credit Karma for First 200 FMF Readers

Here's an offer for you simply for being an FMF reader -- FREE credit alerts (a new service from Credit Karma)!

Here's how the credit alerts work:

1. Credit Karma monitors your credit report for free on a daily basis.

2. A change occurs in your credit file (say, a new credit inquiry, a new address, or a fraud alert, for example).

3. Credit Karma catches wind of the new activity and lets you know by sending you a Credit Alert in your email inbox.

In other words, all you have to do is check your email to keep up-to-date on your credit activity, and it’s always free for you!
 
The Credit Alerts are only available on a limited basis at this point (at least that's my understanding), but if you want one, you can get it here. This link will be good for the first 200 people who want the service.

Disclaimer: I do not use this service and can not endorse it one way or the other (I've never tried it so I can't say if it's good or bad.) The company simply offered me free accounts and I thought some of you might like this service, so I'm making it available. As with anything, use your own judgment whether or not this will work for you. And if you do try it, please come back and comment here telling the rest of us what you think of it.

Six Steps to Financial Independence

MoneyTalksNews lists six steps to financial independence as follows:

1. Freedom is inversely proportional to debt. It’s fundamental: The more debt you have, the less freedom you have.

2. Freedom means being rich, not looking rich.

3. If you want to work less, make your money work more.

4. Think like a hamster, live like a hamster. A hamster can only think in the present. You have the ability to visualize the future and sacrifice today for a reward tomorrow.

5. Think less about money, more about time. Stop thinking of physical possessions in terms of money and start thinking of them in terms of time. Mentally convert money into minutes and you’ll achieve financial freedom faster.

6. Where you see yourself is where you’ll be.

It's an interesting list to consider. A bit heavy on philosophy and weak on practical application IMO, but it does make you think about some key issues related to becoming wealthy.

If I was to list my steps to financial freedom, they would be:

1. Develop a career or some other source of income that is significant (and growing).

2. Spend only a portion of that income.

3. Save as much as you can and invest it for as long as you can.

4. Avoid bad financial moves.

Do these things and in a relatively short period of time (20 years) you are almost guaranteed to become financially independent.

Agree or disagree?

How to Earn More than $3 Million in 20 years

Poets and Quants lists MBAs that return more than $3 million in earnings in 20 years. Here's a listing of the school as well as the median cumulative pay over 20 years:

1. Harvard Business School - $3,606,601    
2. Pennsylvania (Wharton) - $3,340,334    
3. Stanford - $3,291,894    
4. Columbia - $3,203,292    
5. Dartmouth (Tuck) - $3,092,471    
6. MIT (Sloan) - $3,056,072    
7. Northwestern (Kellogg) - $3,034,837

The piece goes on to list the median 20-year earnings (as well as median salaries after 20 years and 10 years) for the top 25 business schools. Click on the link above if you want to see where a specific school nets out.

Several thoughts here:

• My business school did not make the top 25. Ugh.


• Pretty impressive amounts of money, huh? And when you consider that these are just the first 20 years after school and the people may have 20 more peak-earning years ahead of them, you can see why having an MBA from a top school can produce a stellar income over a lifetime.


• The numbers above are for average students. Imagine what the ones who are really driving their careers make!!!!


• I know graduates can make money in the ranges above by being a "great" post-graduate performer (really working at growing your career versus just being "average") from a "lesser" school.

This begs the question: is it "better" to be an "average" performer at a top school or a "great" performer at a "lower-level" school? Let the debate begin...