Free Money Finance

Five Retirement Surprises

The following is a guest post from Marie at Family Money Values.

You've no doubt read a lot of Free Money Finance's advice on planning for retirement – and hopefully are implementing those parts of it that make sense in your lives.  Sometimes it helps to hear the story of those that have gone before you so today I share a few of our retirement experiences. I'm 62 and I've been retired for 1 1/2 years.  Hubby is also 62 and has been retired for 4 years. 

As I was preparing to join my spouse in retirement, I eagerly read everything I could on the subject.  I wanted to know what it is like to be retired.  What do people do, how do they feel, what changes happen in their lives and marriages, how does their money hold up and did their planning actually work for them?

Although I found a lot of material on planning and preparing for retirement, I didn't find much on actually being in retirement.   To help all of you future retiree's out there, here are 5 surprises I have found in retirement and some suggestions for you on each. 

I now know why there wasn't much material from people already retired – retirees are super busy!

Surprise #1:  Retirees are too busy to talk about being retired.

While I was working, in those scarce moments when I had time to reflect on it, I pictured my retirement as being one long unscheduled vacation – during which I had all the time in the world to do anything I wanted to do. 

In reality, I am busier now than while I worked at a salaried job, and so is hubby.  We are each actualizing dreams that we had for years. 

He loves to work outside, but was stuck in an office job for 30+ years.  For the past 4 years he has pursued a vision of how he wants our acreage to look and works towards it every day.  He is more active and healthy than ever. 

I have always enjoyed learning new things, doing research and writing.  Since my retirement, I have developed 3 websites – designing and implementing them as well as writing content for them.  It is such a thrill to see my work published and to hope that it is helping someone else out in the cyber world.  I've also implemented a 'Grandma Money Camp' for my two grandchildren – a week each year to make sure they learn good personal finance hygiene.

Retirement prep action item:  Be realistic in the goals you hope to achieve in retirement – make sure you plan out how you want to spend your time to get the maximum benefit for YOU.

Surprise # 2:  Your marriage doesn't have to suffer during retirement.

Some of the retirement planning reading I did prior to taking the plunge indicated that marriages could be terribly stressed when two people - not used to hanging around each other all the time - are suddenly together 24/7. 

I was pretty worried about this one.  He's a morning person.  I'm not.  He has some pretty strong opinions with which I don't always agree.  I am more detail oriented than he.  I like to travel more than he does.  We both like time to ourselves.  Plus, he was used to being home by himself – having been retired already for a couple of years while I continued to work.

To handle this, we talked about it before I retired.  It helps that he likes to work outside and I spend a lot of time inside.  We both try to give each other time and space alone.  We don't go everywhere together.  If one wants to watch a favorite program on TV that the other hates, then the other does something else for awhile.  We accommodate each other.  We've also grown to know one another better.  Each morning we sip coffee together and philosophize about how things were, are and should be.

Retirement prep action item:  Talk to your spouse and other people in your household prior to retirement.  Discuss how you envision the day going and figure out what you all need to do to adjust to the new situation.  Don't forget to consider how other people's expectations of you might change.

Surprise #3:  It helps to keep a routine.

Most folks hate the work week routine.  Get up, shut off that alarm, grab a cup of coffee, get the kids to school, out the door to work and then home again.  Who would think you would want a routine in retirement?  I was really surprised to find that I did.

Routines help me get things done.  I knew that I wanted to continue my morning routine of exercise post retirement.  After all, I've been doing it with good consistency for more than 30 years and have stayed pretty healthy.  Now that I'm finally on my own, I have even more incentive to stay healthy!  Routines help me get through the boring stuff – like dusting, flossing and grocery shopping – and yes exercising.

Retirement prep action item:  Plan to match your retirement goals with the routine(s) that will help you achieve them.

Surprise #4:  A simple retirement can bring contentment.

Most of us dream of travel to unseen and exotic locations, living more luxuriously and satisfying new desires in our retirement.  I have found that I am content to keep most of my current possessions; to travel only occasionally; to stay home most of the week; and to spend time enjoying what I do have.  Simple pleasures, like drinking a single glass of red wine at dusk while I watch the sun set through our wooded hills, are satisfying.  I don't need (or want) to move to Florida, buy a new house, travel overseas or spend a lot of money to be content.

Retirement prep action item: Consider what kind of retirement will bring you the most pleasure and satisfaction and plan for that.  If your wants and needs are simple, you may be able to retire earlier than you think.  If they aren't, plan for the retirement you want.

Surprise #5:  You don't have to miss the paycheck.

Prior to retirement I earned more than 90% of folks in the US.  I really thought we would miss that paycheck.  The reason we don't is the result of years of work, effort and planning. 

Hubby stuck with his office job for 30+ years.  It wasn't very exciting and it didn't pay in the top 10% - but it had a golden pension – which we now enjoy. 

We have always lived off his salary and invested mine, even when my salary amount overtook his.  We lived within his means and invested the rest. 

We have always kept our debt under control.  We have never paid one penny in credit card interest.  We've been car loan free for 20+ years and mortgage free since 1993.

Before I retired, I spent two years doing what if scenarios and keeping spreadsheets and charts to ensure that we would be able to have the retirement we wanted financially.  We socked away two years of my salary into very liquid investments so we wouldn't have to dip into investments for years.

So today, we live off his pension check, interest and dividends.  We have a huge liquid position to do the things we want to do in the next few years before we start drawing Social Security at normal retirement age and taking required minimum distributions at 70 ½.  We don't miss my salary.

Retirement prep action item: Save NOW for retirement.  Understand what your desired retirement will cost and chart a path to generate the income to support it.  Those who fail to plan, plan to fail!

Does my experience surprise you?  How do you envision your retirement?

25 Ways to Make Money Today

Wise Bread lists 25 ways to make money today. I divide these up into three groups: things I have done to earn money, things I haven't done but would do to earn money and things I'd pass on even to earn a buck. Let's start with the ones I've actually done (along with my comments):

• Sell some stuff -- Who hasn't sold something to make money? This is exactly the idea I was talking about when I wrote Make and Save Money by Getting Rid of Your Junk.


• Mow lawns -- I used to make a good amount of money mowing lawns. Now I'm an employer of a lawn mower (my son.) I like it better the way it is now. :-)


• Make lemonade from lemons -- I tried this and sold maybe three glasses of lemonade.


• Scoop up your change -- We have a change bin that holds all of our coins. Every once in a while we dip into them for some extras here and there.


• Return unopened, unwanted or broken items -- We take back stuff we've purchased and don't want all the time. But this isn't really making money, is it? Isn't it just getting back money you already spent?


• Recycle -- We recycle all the time, but just don't get paid for it.


• Monetize your blog or website -- I've done this, though all my earnings go to charity. That said, it might not always be that way.


• Wash cars -- What kid hasn't done this one?

Now here are the ones that I haven't done but would be willing to do:

• Rent useful space -- I could rent my home either to a person (like a college student) or as a storage location for someone with too much stuff. Anyone do either of these?


• Walk dogs -- My daughter does pet sitting and there's a lot of money to be made if you work at it.


• Become an online juror -- Guilty! That will be $25.


• Take paid surveys -- I'd be willing to give my opinion for money. The key would be how much money for how much time. All the paid survey offers I've gotten are something like $1 for a 30-minute survey. No thanks.


• Become a tutor -- Just like pet sitting, I think you can make decent money at this as long as you work at it (and build up your business.)

Now here are the ones I wouldn't do:

• Hit up Goodwill -- Too much time sorting through stuff and then selling it.


• Have a bake sale -- No one wants to eat anything I'd ever bake.


• Become a street performer -- Ha! Really?


• Beg -- Closer than being a street performer, but I'll pass on this one too.


• Donate your sperm -- Uhhhhhh.....


• Sell event tickets -- Like a scalper? Seems shady to me.


• Gamble -- Isn't this a money-losing idea?


• Sign up for medical tests -- My health is worth more than $30.


• Dumpster dive -- No way. Gross!


• Become a delivery service -- Sure. I bet I'd be able to blow UPS and FedEx out of the water. Not really.


• Donate plasma -- Maybe I would do this, but I don't know where I'd go, how much I'd earn, etc.


• Go fishing -- There's no money to be had here. Plus I hate fishing -- it requires too much patience.

I think I prefer my own suggestions for making more money.

How about you? See any ideas above that you either use or would be willing to try to make some extra cash?

Four Reasons Resumes are Rejected

Daily Finance lists four reasons resumes are rejected as follows:

• Too long. Your resume is not meant to be an exhaustive list of every job you've ever held, every award you have ever received, and every training program, club, or activity you have ever attended. To make the best impression and have the best chance of making the cut, highlight those things on your resume most important to the position at hand.


• No cover letter. If you are over or under qualified for a position, have a varied work history, or have skills that aren't highlighted on your resume, a cover letter is essential.


• Grammar and spelling. Your perceived lack of attention to detail is an instant eye catcher to the recruiter.


• Achievements vs. job description. One of the biggest and most frequent reasons people fail to be noticed by their resume is job details vs. results orientation. Companies want to know they are getting value for their buck in today's market. By highlighting how you have added to the success of your past employer, you are likely to catch the recruiter's eye and make it to the top of the pile.

Here's my take on these:

• Shorter is better IMO. If you've been working for 10 years or less, you should be able to get you key accomplishments on one page. After that, you can go to two. If you're a very high level candidate, you can go more, but by that point you are usually working with a recruiter and often he'll write an extensive review of your skills, separate from your resume, for the potential employer. Personally, the last resume I had (which was several years ago) was two pages long (after I had 15 years of work experience.)


• I'm not a big fan of cover letters, probably because I don't read them myself. But if you're mailing in a resume, you will need some sort of introduction. And if you have special circumstances like they note above, then an explanation is warranted. Other than that though, I'd bag the cover letter.


• Have a few people look over your resume for spelling and grammar. We all have had cases where we've looked over something 100 times only to have a new reviewer point out a mistake in 10 seconds. So have your husband, wife, friend, co-worker, whoever review your resume before it is "final."


• The accomplishments versus job description is the biggest problem I've seen with resumes. You wouldn't believe how many people simply describe their job function on a resume. Those documents go straight to the trash can. The ones that make the cut list quantifiable examples of results they have achieved in their careers. I've written about this topic a lot in the past because it's VERY IMPORTANT (and if you get it wrong, you're killing your chances to get the job.) For more details, check out The One Thing that Makes a Winning Resume, Results, Results, Results, How to Make a Minor Accomplishment into a Major Resume Success, and What to Do If You Have No Quantifiable Accomplishments.

Those of you who hire others have anything to add to these thoughts?

The Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, Do a financial self appraisal.

Enjoy!

A Financial Planner's Disaster

MSNBC has a piece about a "financial planner" (he was actually a Certified Financial Planner, but doesn't really deserve the title IMO) who made a ton of financial mistakes and ended up losing everything. Here are snippets of his story:

I felt we could afford around $350,000 [for a house]. We ended up buying the house and paid the asking price of $575,000.

We borrowed 100 percent of the purchase price.

I shouldn’t have relied on someone else to make that calculation, let alone the guy who was making money putting me in the loan.

I was a financial adviser, and I never sat down to figure out what it would take to make this work.

Ok, let's stop here for a minute and review the mistakes he's already made. And let me remind you, this guy is a CERTIFIED FINANCIAL PLANNER. He's supposed to know how to handle money. The list:

• He bought a house he couldn't afford. This violates point #2 in my formula for buying a house.


• Then he made it worse by borrowing 100% of the home's price. I'm not sure what financial planning school this guy went to, but it wasn't up to snuff.


• He relied on the bank to tell him how much he could borrow. Really? Isn't this a "financial mistake 101" offense?


• He was an advisor and yet he never even figured out whether or not borrowing almost $600k would work out or not. Wow.

But wait -- it gets worse:

The market’s continued strength meant we could borrow even more. It was easy. In late 2004, a year after buying the house, we refinanced our mortgage with World Savings Bank. We picked the lowest possible payment, the one that added to our balance each month instead of subtracting from it. And we added a line of credit with Wells Fargo.

The extra borrowing power was important, because while my income was growing rapidly it wasn’t enough to support all our expenses. We were borrowing against the house to finance our lifestyle. In hindsight it is clear that we were spending more than we should have on things like recreational gear and family trips for ourselves and our four children.

It was extravagant, but it seemed modest compared to what some of our neighbors were doing.

So he started out bad, then made things worse by spending at an ever high rate (trying to keep up with the Joneses) as well as refinancing with a loan that made the amount he owed go UP. Ugh. And people relied on this guy to give them financial advice? It just makes me sick to think so.

But it turns out all was not lost -- he had an opportunity to get out from under it all:

As late as February 2006, a comparable home in our neighborhood sold for $998,000. We made the classic mistake of projecting recent trends — even extreme ones — into the future.

I can see how this reasoning went. If the house doubled in price in a few years, then in a few more it would be worth twice that -- then a few more twice that. And so on and so on and so on. In about 10 years they would be millionaires.

But that's not what happened. Instead of growing at its frantic pace, everything collapsed. The market toppled -- both the housing and investment markets -- and his income dropped as a result (because he managed fewer assets). The bank cut off their HELOC, which was a problem since they were using it to fund their lifestyle. Then this:

By that fall [2009], I was convinced we had to move back (they had moved to Utah to live with parents) permanently to save the business. But that meant we faced the question of what to do about the house. By then, we owed over $200,000 more than our original loan balance.

You can read the rest of the piece if you like, but basically they lose the house and life gets really rough. It's actually surprising to me that they lasted as long as they did. They took so many wrong steps that disaster could have hit them years earlier.

And what messes with me so much is not that this happened, but that it happened to a guy who supposedly knew better (or at least should have known better). A guy that was advising others on how to manage their money. And yet he didn't even follow the basics of personal finance himself. I would never turn my money over to such a person (in the same way I wouldn't go to a fat doctor.) If he can't apply his own advice, then he's not fit to give me advice.

This then brings up the question "how do I know if someone is actually a good financial manager of his own money before I hire him?" The answer: you don't. That's why I'm an advocate for learning how to manage your money yourself, then bringing in experts only when you need advanced advice (like with complicated tax matters, in drawing up a will, etc.) All the other (fairly simple) principles that lead to a good net worth are ones that almost anyone can learn and apply. That's why I recommend knowing and applying the basics yourself and not trusting someone else to do it. Because no one else cares about your money as much as you do.

Look at College as an Investment

Dr. Thomas Stanley suggests that people should start looking at college as an investment. What does this mean? Well, what do you want when you invest? The best possible return on your money, right? Shouldn't investing in college be the same way (that you at least get a decent return on the time and money you invest)?

Well, looks like someone is helping us all in this effort. The details:

Smart Money looked at [the incomes of] two groups of alumni: recent grads out for an average of 2 years and mid career alums out 15 years.

It computed the so-called "Payback Score. .an average of those two groups, current income expressed as a percentage of the sticker price-tuition and fees."  The top five with the highest [Payback Score] were:

1. Georgia Tech [221]
2. University of Texas [194]
3. University of Florida [191]
4. University of Georgia [186]
5. University of Illinois [184]

The Ivy League school with the highest Payback Score was Princeton University with a 102 score.  Georgia Tech's Payback Score means that its alumni earn 2.21 times more annually than the estimated cost of tuition and fees where they attended school.  Interestingly, Smart Money's estimates actually understate the productivity of public universities such as Georgia Tech because it used out of state tuition and fee figures which are significantly higher than in state costs.

In case you're interested, here's the chart of the top 50:

I have a lot of thoughts on this one:

• They key to being high on the list is relatively low costs and yet relatively high income. I know that's kind of the point of the whole piece, but so many people spend "whatever it takes" to go to XYZ college without a thought of cost or career earnings that many will see this analysis as enlightening.


• Note how public schools were at a disadvantage. Many more would have ranked higher if a blended tuition rate (not just out-of-state tuition) was used.


• Princeton ranked 19th. The 20's and 30's were full of Ivy league schools, but they we not the "best" options.


• Granted, people go to college for many more reasons than strict economic value (otherwise everyone would go to Georgia Tech, right?) But at least this gets us going in the right direction -- looking at both the cost of and the return on a college investment.


• My undergraduate school was ranked probably something like 9,345 (I wish they had a way to see the score for any college, but I don't see it -- let me know if you discover how to). But to my credit, I went there for free and was only using it to get into law school. Then my plans changed and I went for an MBA.


• My MBA school is ranked in the top 20 shown in the chart linked above. But I spent well less than what they have listed as a cost and make way more than what they have listed as an income. Yes, my education was a great $5k investment.

This issue is becoming more and more important to me as my kids approach college age. It's something I've been thinking about quite a bit and will be doing more of in the future as I seek to help them decide the best options for their education.

Rave Reviews for the Chase Sapphire Preferred Card

When I posted that I had finally got a points-based credit card (though the points can also be redeemed for cash), I was shocked at the set of positive comments I received. Here's the first comment about the Chase Sapphire Preferred card:

I got this card a couple months back and am very pleased. The booking engine for flights seems to mirror Orbitz, so the prices are exactly as I'd get elsewhere. When you go to book your reward travel, it tells you in bold that you have X amount of points that is worth X amount of dollars. VERY EASY. It's 2% points on travel and dining purchases and the lack of a foreign transaction fee was important because we're taking a big trip this year. Basically, if you only spend on those items it works out to 2% cash back or 2.5% on travel when it comes to redemption, so if you don't travel it's still not a bad deal.

I didn't know about the no foreign transaction fees. Looks like this might be the card I take on my cruise next year.

The same poster then followed up with this comment:

Oh, and I should note that you don't have to spend in 25k point increments or anything like that. If you're booking a $300 ticket and you only have 1,000 points in your account, you can use your points for $25 off your ticket. If you have 1,378 points, it's $34.45 off your ticket. None of that nonsense about needing a certain number of points to redeem or weird blackout stuff.

And then there was this comment:

Ahh...the best travel related card out there. The flexibility between Continental, British Airways, Korean, Hyatt, Priority Club, and Marriott is KILLER! It's my #1 card. Enjoy!

Not a bad endorsement, huh?

And another:

That Ultimate Rewards points will transfer to a number of different airlines and hotels. The value is often even more than the $500 or $625 value you get by using points for travel with Chase.

Leave the card open until it comes time to pay the fee in a year. If they'll waive it or credit your account just keep using it and enjoy the benefits. This is one of the main cards I use when I'm not chasing the big sign up bonuses available on other cards.

And finally this:

I got this card for the bonus and it was great. The flights we got were competitively priced. The credit card is actually the same rewards platform as the chase freedom card so I think you can use your chase freedom card points for the same travel booking bonus.

That's an interesting point. I also bank with Chase, so I wonder if I can get it hooked to my bank account so I see it when I log in to the bank's site.

I guess what threw me most about the comments above was that there were so many positive thoughts about a CREDIT CARD. Really? I guess I'll find out if it's as cool as they say.

I must admit that my first reaction has been good. I received the card shortly after applying and it is VERY COOL. It's a dark blue card with only my name on the front. The card number is on the back. But the really cool part is that it's made out of metal. Yep, that's right, metal. Or at least I thought it was metal. It's noticeably heavier than any other credit card I've ever had.

When I activated the card I got a live person. She confirmed that the card was made of metal (though she didn't know if it would set off airport security scanners) and told me that the card has a special phone number exclusively for holders of this card. That's pretty neat IMO. Not that I think I'll need it, but perhaps I will. It could be a valuable perk in times of potential trouble (like being away from home on travel).

We'll see how it goes -- I'll keep you posted. Next step will be receiving and redeeming my bonus rewards.

The Complete Guide To Building Wealth In Two Sentences

The following is a guest post from Todd Tresidder who writes regularly about advanced personal finance topics and investment strategy at Financial Mentor. As most of you know, this line of thinking is near and dear to my heart. :-)

Building wealth is simple.

It doesn’t require luck, genius, or special connections.

You don’t have to attend overpriced, weekend financial seminars or learn the latest tricks and gimmicks sold by slick marketers.

As John Bogle wisely stated, “The secret is there are no secrets”.

The truth behind wealth building is public domain knowledge, simple to understand, and nobody is going to get rich selling it you.

In fact, it is so simple it can be explained in just two sentences…

1. Make more than you spend and invest the difference wisely.

2. Your wealth is determined by your habits.

I know… you’re probably a little disappointed.

You wanted something new, different, and clever – the missing ingredient that has held you back and will produce breakthrough results. Instead, I give you something dangerously close to what your grandmother would tell you. Bummer.

But listen to the voice of experience. I’ve coached hundreds of people from debtors to the wealthy and the pattern is unmistakable. And it’s not just me singing this song. These same truths were taught by Benjamin Franklin hundreds of years earlier, reiterated by numerous authorities since Franklin including J. Paul Getty, and still work today.

It is timeless wisdom that has been proven over the centuries, and will probably work for you also (if you just put it into practice).

In short, if you want wealth in this lifetime with the highest probability of success, then these two sentences contain the essential wisdom you need to know…

Make More Than You Spend And Invest The Difference Wisely

The first sentence summarizes how to manage your personal finances so that you grow assets. It explains the importance of creating positive cash flow that you invest to produce additional positive cash flow.

Notice how it is composed of three separate yet connected ideas to form a single concept…

1. Spend less

2. Earn more

3. Invest wisely

There are endless variations on how to achieve this objective but they all follow two simple themes…

• You can reduce spending immediately through various forms of frugality.


• You can increase your income through various strategies including changing jobs, getting a raise, or starting a business.

In short, you must create a gap between how much you earn and how much you spend that results in savings to invest for growth and additional income.

The twin themes of spending less and making more are not mutually exclusive, but they do require very different mindsets.

Frugality is about living on less and requires self-discipline. For most people there is a feeling of sacrifice when following this path thus making it difficult for many to succeed. If that is you then frugality is a slow and difficult path to wealth because you will be in constant battle between lifestyle desires and financial freedom goals.

For others frugality is a pleasurable journey in simplification where fulfillment results from redirecting earned income toward financial freedom goals rather than squandering it on spending. It is not uncommon for extreme frugalists to save 70% of income and achieve financial independence in less than 10 years, but it’s not everyone’s cup of tea.

Another alternative is to raise the income side of the equation. The advantage to this approach is there is no theoretical limitation to how fast your wealth can grow because your earning capacity is unlimited.

Many wealth gurus teach the income side of the equation as the “fast path” to wealth; however, if you don’t master the spending side of the equation you still run a high risk of failure due to the all-too-common mistake of allowing spending to rise as fast as income.

The greatest wealth builders focus on both sides of the equation together. They maximize savings by controlling spending while growing income at the same time. It is the quickest, most certain path to increased savings for investment.

The third component to the equation - invest wisely - is also simple because everything you need to learn is available for free in the public domain. You don’t have to take investment seminars or build extraordinary expertise. There are two well proven paths...

1. Paper Assets: Conventional buy and hold using low cost index funds and proven asset allocation models. Vanguard Funds offers you everything you need.


2. Real Estate: Direct ownership of positive cash flow real estate in your local area.

In summary, achieving financial freedom is really quite simple.

1. Spend less than you make and invest the difference wisely.


2. Rinse and repeat until the income from your investments exceeds your expenses. At that point you’re infinitely wealthy and financially independent.

With that said, the sad truth is few will achieve financial freedom despite the desirability of the goal and the simple path you must follow to achieve it. The reason is explained in the second sentence….

Your Wealth Is Determined By Your Habits

The reason so few people achieve wealth is because they don’t adopt habits that lead to wealth.

As you already know, the formula is simple and fully proven. The only thing remaining is to take action with enough consistency to achieve the goal… and that is where the problems occur.

Procrastination is the single biggest wealth killer. You plan on getting around to it someday. You know what you should do but there is always some other priority. The kids need braces, the car needs repair, the kitchen needs remodeling.

Action is where the rubber meets the road. It is one thing to know what to do, and it is something else entirely to get it done. That is why habits are so critical.

Habits are the reason postal workers become millionaires while lottery winners go broke.

It doesn’t matter if you look at the writings of Benjamin Franklin 250 years ago or Stanley and Danko’s recent bestseller The Millionaire Next Door: Surprising Secrets of America's Wealthy. They all say essentially the same thing – the distinguishing characteristic of people who achieve wealth is they manage their money well. They have good money habits.

They don’t earn the most. They aren’t the smartest. They don’t have any special training. They just have good money habits – brain dead simple.

The reason good money habits are essential is actually scientific and results from the mathematics behind how money compounds to grow into wealth. Small changes done over long periods of time can create massive results. It is an easy path to wealth.

That’s why daily habits are so important.

• A daily habit of frugality saves small amounts every day that compound and grow over long periods of time to become substantial wealth.


• A daily habit of increasing your earning capacity through training and education will add small amounts every day to your income potential.

Both of these daily habits will create an increasing spread between what you spend and what you earn which will increase your wealth at an accelerating rate.

This is not rocket science. It is just daily habits dedicated toward a specific goal – building wealth.

The habit causes the action which produces the result. It is simple cause and effect.

Habits are the easiest and simplest way for you to cross the bridge between how to build wealth using the simple formula above and actually doing what it takes to achieve the goal.

You don’t have to intellectualize the process or overcome massive obstacles. You don’t have to get ready to get ready. Instead, you just start today by adopting one habit that serves your wealth goals. Here are some potential starting points…

1. Sign up for an automatic savings program.
2. Optin to your company 401(k) (if they offer it).
3. Prepay a small amount on your mortgage.
4. Find an unnecessary expense and eliminate it.
5. Clean up clutter by selling unused assets (RV, boat, jewelry, etc.).
6. Repair something instead of replacing it.
7. Develop a niche expertise in your profession that commands a higher wage.
8. Start learning about asset allocation or investment real estate.

Just pick one habit and start today. Practice the habit until it becomes permanent then pick another habit and do it again. Then another and another until you can see your wealth grow.

The greatest obstacle to building wealth is procrastination. Habits are the simplest way to overcome procrastination and get into immediate action.

Habits reduce the entire wealth building process to bite sized pieces that are easy for anyone to digest. The compounded effect of all these tiny actions over a lifetime becomes wealth. It is simple cause and effect.

In Summary…

The formula for wealth is simple - spend less than you make and invest the difference wisely.

The mechanism to take action on the formula and produce results is equally simple – adopt wealth building habits.

The only question remaining is whether or not you will do what it takes.

Will you follow these proven, simple formulas to achieve amazing financial results, or will you return to your same old patterns that produce the same old results.

The only thing standing between you and wealth is the willingness to act on this timeless wisdom.

11 Secrets of Frugal Bloggers

US News lists 11 secrets of frugal bloggers as follows:

• Reuse plastic sandwich bags.
• Make your own cleaning supplies.
• Ignore expiration dates on food.
• Stop drinking soda (or another beverage).
• Move back home with your parents, at any age.
• Get rid of your carpet.
• Hold a no-spend month.
• Take cold showers.
• Stop using a fridge.
• Replace your house with an RV.
• Turn your car off—while it's still moving.

I consider myself frugal. Most of you probably consider me over-the-edge-frugal. But most of these ideas are way too "out there" even for me. Here's my take on the suggestions above:

• Reuse plastic sandwich bags. I do this if the bag was used for something dry and it's convenient to reuse it. For instance, I reuse plastic bags for candy we take to the theater and ones we use to keep our soccer score cards dry when it rains. I don't wash out a bag that is smeared with tuna salad. And if we're far away from home (like on a trip), I'll simply throw them away instead of hauling them back (I usually have too much other stuff to deal with to add one more thing.)


• Make your own cleaning supplies. Too much time, effort, and I question their effectiveness. That said, my wife has tried this in the past. Then again, she's more frugal than I am.


• Ignore expiration dates on food. If it's a close date (like a week at the most), we'll go ahead and eat it. But with most stuff we never get that far (we buy what we need/want) and if we do, then it's better to be safe IMO and not eat it.


• Stop drinking soda (or another beverage). The soda I drink most is free (from work.) Other than that my main beverage is water.


• Move back home with your parents, at any age. Yeah, right. There's a better chance of my parents moving in with us.


• Get rid of your carpet. We have a carpet cleaner and our carpet looks pretty good after 12 years of use. We'll see how it holds up over time, but I can't imagine the cold Michigan winters with hard wood (or similar) floors.


• Hold a no-spend month. I wouldn't mind actually trying this for a month, just to see what it's like. Perhaps something I'll do and then post about it.


• Take cold showers. Really? Do you really save that much for the torture it puts you through?


• Stop using a fridge. No way.


• Replace your house with an RV. Why not just live in a cave? Come on, this one is way over the top for me.


• Turn your car off—while it's still moving. Note that the article says that this is not recommended. And I don't do it. I don't know anyone who does.

Let's face it, we all make money so that we can enjoy some of the "finer" things in life, right (like warm water and cold, safe food)? So it's not a big deal to me if someone spends money on those. An over-spending problem only comes when people get out of control and spend like crazy. But you can be out of control in the other direction too -- by being so frugal that you endanger your life (by eating bad food) or are so uncomfortable that life holds no pleasures. Is that any way to live?

How about you? Do you use any of the money saving techniques listed above?

Save 35% on You Need a Budget

Just a note to let you all know that today (and today only from what I understand) there is a 35% discount on the You Need a Budget (YNAB) budgeting software. I don't use YNAB but I know that many FMF readers do (and they like it.) So I thought I'd mention the sale since some of you may want to pick it up -- and 35% off is a decent deal.

If you'd like to get the discount, go here.

Reader Profile: KD

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

My DH and I are both in our late 30s. We grew up in the northeast and moved together to the southwest in the mid-1990s. We've been married for 14 years, no kids, 1 dog.

We got married soon after we moved here to the southwest and I started a Ph.D. Program in Educational Psychology. For the next five years, my DH worked in retail/ customer service at  about 25K/ year while I went to grad school working as a graduate assistant. Unfortunately, we lived as if we were both working 50K/ year jobs. We took the maximum student loans offered, including unsubsidized loans, whose interest started accruing while I was in school. We continued to rack up credit card debt. We didn't buy extravagant things, but we traveled, ate out, bought sports memorabilia (well one of us did), and didn't think a lot about money. Periodically we opened new credit cards from the multitude of offers we got. I'm sure you see where this is headed.

We continued down this path, leasing a car that we drove too many miles per year. Two years later we then overspent on a small pickup to get out of the lease.

Finally, approaching the end of my graduate program, we bought a 3 bed/2 bath 1200 sq. foot house  for $102,000.

Finally, I finished grad school! I had a newly-minted Ph.D. We owed 82K in my student loans, 8K on DH's student loans from his bachelor's, 45K in credit cards, 101K mortgage, and 14K on a car loan.

And this is the turning point in the story. First, I got a good job in my field, paying $80K/year. Second, we were able to consolidate my student loan at 3%. Third, we woke up. There wasn't really one big event; over the period of a few months with the new check coming in, we just realized we had to get it together. We made an Excel spreadsheet with all our debts and got to work. The banks were still sending out 0% interest rate balance transfer offers with NO fees. Despite the giant mountain of debt, there was one thing we did right - we were never late on a payment. Because we'd never been late, we had insane credit limits on the cards and good balance transfer offers rolling in. We did a series of transfers to keep our credit card interest rates below 5%, including transferring 24K onto a 0% interest card. We paid all these transfers off before they were due to jump and still joke about the money Citi lost on those offers.

ALL money went to debt service. A couple things that worked for us: 1) micropayments and 2) artificial scarceness. We would pay something on some debt almost every day. Sometimes it was $10, sometimes more. It kept our eye on the ball and it kept those numbers on the Excel spreadsheet going down. In terms of scarceness, we have never had a specific budget where we list out where every penny we have goes. Rather, we listed out all our bill payments and sent out all the payments, maxing out our debt payments, and lived on whatever was left.

So, in December 2004, we had 250K of debt, in December 2005, we had 206K, in December, 2007 we had 164K, in December 2008 we had 122K. As of December 2009, we paid off all credit cards, car loans (including new cars in 2004 and 2009), and the mortgage. The only debt we had was that student loan at 3%, paid down to 73K. We might have even gone faster, but we did contribute to our retirement accounts during this time as well.

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

So, where are we now? DH still works in retail/ customer service, making about 35K a year. I'm still at the same job but have gotten raises up to 100K. In addition, I teach adjunct classes at both my alma mater and an online university bringing in another 12K/year. We also get $750/ month rent on our old house.

Yes, last year we moved up and bought a new house. We're in one of those southwestern cities where property values have plummeted. We bought a 4 bed/ 2.5 bath house with a pool on a lake for 160K (20% down, interest rate under 5%).

Current assets:

• House 1: 60K (no mortgage)
• House 2: 160 K, 80K mortgage
• Retirement accounts: 160K (401ks and IRAs invested about 25% bonds, 50% S&P index, 25% small cap and international index funds) I max my 401K, DH does 10% plus DH is fully vested in a pension plan Taxable investment account: 10K
• Savings/Cash: 12K (down due to paying student loan, see below) Separate maintenance fund for rental house: 10K

So, monthly expenses:

• 900 new house mortgage
• 250 utilities/water/sewer
• 150 insurance (auto and rental house)
• 100 taxes on rental house
• 200 internet/TV/phones
• 30 gas (I telecommute 4 days/week)
• Then we direct chunks toward savings accounts and use what is left for food, entertainment, etc.

My husband actually handles day to day finances. He logs on to the credit card and bank accounts almost daily to make sure there aren't problems. He does things like call DirecTV every 6 months and threaten to leave unless they keep our rate low (and calls back to tell them he really means it). He also does 95% of our grocery shopping, buying only what is heavily on sale. He also “plays” a bit with about 10K in an investment account in which he picks individual stocks. Over the past five years he's managed to beat the market buying dividend stocks from known companies. So, although I make a lot more salary than he does (playing offense), he does a lot to keep us on the right path (playing defense, as the Millionaire Next Door calls it). I do a quarterly update of all accounts and our net worth. Neither of us spends more than  $100 without checking with the other.

The big news... we just mailed in the final payment on my student loan! In the past 6 months we decided to just kill it. We had been listening to everyone saying it made sense to keep it forever at 3%, but our savings accounts earn 1% and the stock market is a roller coaster, so we just said “let's do it.” We took a chunk of money that was sitting in an ING savings account and put that down to get us started.. That puts us down to 3 months expenses, so now we'll get the EF back up to 8 months, but student loan free.

I'm fairly sure that after that we'll probably go after the mortgage. It is just too addicting to pay off debt.

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

First, what do we do with our first house? When we bought our new house we almost immediately rented our old house to a family down the street who was being foreclosed on. We knew them and knew they took good care of their house even going into foreclosure. So far, they've been good tenants. We rented instead of selling because of the huge loss in value. The house next door to ours just went on the market for $50K. Yes, half of what we paid in 2001. Our current tenants are on a lease until June. We worry that the water heater, AC, and all systems are now 16 years old. I think the tenants would like to buy at some point, but with a foreclosure 18 months ago, it may be awhile.

Second, I started out behind on retirement since I was in school until I was 30. Also, I never really know how to factor in DH's pension. How confident should we be that it will even really come through? Also, we should max our IRAs in addition to the 401ks. We're really leaning a bit too heavily toward debt reduction at the expense of retirement.

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

Ideally, I'd like to work full time until about 55 and then teach part-time as an adjunct and do some volunteer work. DH is even more motivated to retire early, having no great love for his job (other than the paycheck).

Really, though, we're probably headed into a long period of saving where we will need to find motivation to keep going.

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

Money isn't important in and of itself but money is freedom. The difference between being in an unstable job situation when you have a year's expenses saved and when you have none is indescribable. The knowledge that you will be OK financially in a job or health crisis or that you can help someone in monetary need is great. Whatever it is that YOU want to do, even if it isn't directly related to money, having money can ease the way.

The Poor

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

For the rest of the year I'm going to be highlighting verses relating to the poor on Sundays as a reminder of why I'm doing my $20k Red Kettle Challenge. Here are two for today:

• Proverbs 22:9 (NIV): The generous will themselves be blessed, for they share their food with the poor.


• Proverbs 21:13 (NIV): Whoever shuts their ears to the cry of the poor will also cry out and not be answered.

Hope you're having a blessed holiday season.

Creative Ideas for Getting Top-Level Travel Perks

I've been collecting articles on creative ways to make extra money and here's a great one to add to the list. It's about people who take multiple flights near the end of a qualification period in order to hit a certain rewards status. The details:

There is a group of traveler junkies so obsessed with racking up frequently flier miles, they scour the Internet for deals that take them through little-known airports, making them wait hours for connections, and (this is the best part) once they reach their destination, rarely leave the airport and just turn around and head for home again.  And while the trips are different, the goal is the same: elite air travel status.

They're called mile runners -- frequently flying hustlers who live and breathe by Internet flight bookings that allow them to acquire EQMs (Elite Qualifying Miles) that give them luxurious travel perks that airlines have all but eliminated. And mid October is their busy season - their last chance to get those miles and points up to pave the way for highfalutin flying in 2012.

There are two levels of crazy within this class of obsessive traveler. Most, compulsively seek points to re-qualify for a specific elite level of travel.  Perhaps, for example, they are shy a few thousand miles of the elite 100,000 miles mark. The more radical mile runner is an opportunist who hunts for flights based on a ratio of unique miles-per-dollar spent. Their goal is to earn miles that they can apply later for free travel.

Mile runners are typically busy business travelers who book trips that can be completed in one or two days over a weekend. They communicate with acronyms -- their goal is to keep a low CPM (cost-per-mile) and book an a/i (all-in) flight. (All-in means including taxes, fuel surcharges, and whatever fees the airlines decide to tack on.)

So what is all this effort for? It's less about earning/saving money and more about earning some cool perks:

Upgrades, free access to airport lounges, fee waivers like free baggage check-in, access to priority security lines for faster passing, the ability to change flights, and well, overall better treatment. Tickets that typically run around $25,000 a person are otherwise affordable, if not free.

“Being a Diamond Medallion on Delta is absolutely incredible,” says Nainan who is a sucker for the complimentary Sky Club amenities that he loves to take advantage of, and which often include, unlimited food and drink, meals to order, showers, conference rooms, Wi-Fi, office cubicles, a putting green, and a movie theater. 

Nainan’s Diamond Medallion status also grants him a “special secret” toll-free number that greets him by name and is answered immediately.

United and American, at the 100,000-mile flyer level, offer unlimited complimentary upgrades domestically too.

And the benefits go on and on.

Personally, for me, this seems like a TON of work. But if you already travel a lot and simply need a few flights to dramatically improve your status, it seems like it would be worth the effort. Or if you traveled extensively for pleasure, mile running could save you a lot of money I suppose. But when you add in the cost of your time, I'm wondering what the true cost is.

I have only been at the lowest levels of frequent travelers, so I've only gotten a glimpse at some of the perks that are available (when traveling with someone who was a big-time traveler.) Have any of you done something like this? Or are you a frequent flier and can give us a personal perspective on what's worth the effort, what's not, and why?

Get $20 Free by Shopping Online

Just in time for Cyber Monday!!!!

Want an easy $20 for doing something you'd do anyway? Me too. That's why I signed up for the MasterCard Here's to Mom holiday promotion. The details:

1. Enroll with your MasterCard.

2. Shop with your card online between November 15 and December 31, 2011.

3. After spending $200 online, you'll receive an email confirming your qualification and instructions on how to get your MasterCard gift card or other gifts.

4. Limited time, limited quantity. Promotion Open to US Residents Only.

I easily spend $200 online each year, so I signed up. Easy $20!!!

If you want to sign up, go here.

Also a reminder to use your Amex card tomorrow for Small Business Saturday if you signed up previously.

How Much are You Planning to Spend on Yourself This Holiday Season?

I think we are all aware that the more you're out shopping the more you're likely to spend. This includes holiday shopping, of course. You're in more stores, looking at more things, and you're going to buy more -- even more than what you had originally planned.

A key part of this "extra buying" is seeing (and then purchasing) stuff that's not for anyone on your list, but is simply for you.

I'll admit that I usually pick up a few (several?) items in the course of doing my Christmas shopping. I'm out looking for things to check off my list (for others), see something I want/like at a good price, and snap it up. Nothing wrong with that, right?

Well, it appears that I'm not alone in this habit. People not only spend plenty of money on themselves while holiday shopping, but they're planning to spend more this year than last. Here's what CNN Money says about the situation:

Holiday shoppers say they plan to spend an average of $704.18 on gifts and other seasonal items this year, down slightly from last year's $718.98. Most of that money will go toward gifts for family, with the average person expected to shell out $403.26 on presents for kids, parents and other loved ones.

Many shoppers, however, also plan to put themselves near the top of their Christmas lists. About 60% of those surveyed said they plan to take advantage of seasonal sales and discounts to make purchases for themselves during the holidays. The average person plans to spend approximately $130.43 on non-gift purchases for themselves or a family member, up from $112.20 in 2010.

A few thoughts:

• We spend roughly $800 or so on Christmas presents every year, so it looks like we're close to the average.


• We do take advantage of seasonal sales when shopping. We buy wrapping paper, ribbons, etc. at discounted prices (for the next year) as well as items that are used as loss leaders by retailers (I got some anti-virus software last November for a STEAL at Staples.)


• I don't think I spend as much as $112, but I could. And if it meant that I'd get something I would normally pay $50 for and buy it for $15, why not? In the case of the anti-virus software, I bought it but didn't activate it until a few months later -- when my last version expired. Saved myself a good amount of money.


• I wonder if there's less buying for yourself when people shop online. When I buy through the web, I usually know what I'm looking for, find it, and buy it. There's much less chance that I'll simply "run into" something I "need."

How about you? Do you buy things for yourself when you go out holiday shopping?

Star Money Articles and Carnivals for the Week of Nov 21

Here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week. We'll start with links from sites who contributed to my FMF $20k Red Kettle Challenge (please consider giving if you haven't already):

• Faithful with a Few offers thoughts on why we often fail to push ourselves to meet goals.
• Thirty Six Months tells how to avoid impulsive online shopping.

Now here are the carnivals:

• EDITOR'S CHOICE! Totally Money Blog Carnival
• EDITOR'S CHOICE! Carnival of Personal Finance
• Carnival of Wealth

And some other great posts:

• The Digerati Life covers value investing.
• The Sun’s Financial Diary offers frugal holiday decorating ideas. 
• Lazy Man and Money asks what do you want to do with your life.
• FrugalDad covers the business of American food.
• BripBlap thinks big about investing.
• My Dollar Plan offers eco-friendly gift ideas.
• Money Smart Life wonders what he was thinking.

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.

Happy Thanksgiving

Just want to wish you and your family a blessed and very happy Thanksgiving. May we all take a break from talking about money and focus on the things that really make us thankful. Here's my list -- still the same after five years (except maybe the KFC part.) ;-)

Have a great, relaxing, joyful, thankful day!

Is My House an Investment?

The following is a guest post from Marotta Wealth Management.

Just because something costs a lot doesn't mean it is an investment. An investment is something that pays you money.

For most families the largest purchase they make will be their house. It is crucial to understand how to consider real estate holdings in every aspect of wealth management, from asset allocation to retirement planning.

An investment is something that pays you money. Therefore the house you and your family live in is not an investment. Neither is the vacation home you rent occasionally. Nor that piece of land next to your house you bought to preserve your view. It is human nature to justify a purchase by calling it an "investment," but if it doesn't pay you money, it shouldn't be treated as an investment in financial planning.

Historically, equities appreciate at a rate of about 6.5% above inflation. If inflation has historically been 4.5%, equities average about 11%. Equities include stocks, stock mutual funds and stock exchange-traded funds (ETFs). Your portfolio should be invested mostly in equity investments to appreciate at a rate greater than inflation.

Fixed income is more stable, but averages interest payments of 3% over inflation. If inflation averages 4.5%, fixed-income investments average 7.5%. Fixed income includes bonds, bond mutual funds and bond ETFs.

Real estate as an investment falls somewhere between stocks and bonds. On average commercial real estate produces a real return of about 4.9% over inflation. If inflation averages 4.5%, commercial real estate averages 9.4%.

Commercial real estate as property with no income does not appreciate at the rate of inflation. It actually depreciates against inflation by about 1% a year. Fortunately, it should produce 5.9% in profit to overcome this depreciation and produce a real return of about 4.9% over inflation.

Handling commercial real estate privately requires more work. If your commercial real estate isn't generating a lot more income than it costs to maintain it--including depreciation--it isn't pulling its weight. Only if it can produce significant income and grow at a real return of 4.9% over inflation will a $100,000 investment in real estate grow to $331,000 after 25 years.

Similar equations can be used for residential real estate. On average it produces slightly less income, giving a real return of 4.1% and growing to have a buying power of $273,000. Obviously all real estate is subject to the increasing desirability of the area where it is located. Some excellent school districts have experienced appreciation significantly greater than inflation. But many rural communities have barely kept up.

These historical averages provide benchmarks as a way to judge the investment worthiness of a particular piece of property. If you own a $300,000 rental home, you should expect to average at least $3,000 each year in repairs and upkeep. One year it might be lower only to have major bills the next. Your benchmark is a real return of 4.1%. After repairs and all other expenses, you should have a profit of $12,300, or 4.1% of your investment. That means you have to have a profit of at least $15,300 (5.1%) or more for your investment to pay you the appropriate amount.

Real estate that pays you appropriately can be considered an investment for the purposes of wealth management. But you need to run it like an investment and track your return after all of your expenses.

This analysis helps explain why property that you do not rent is not an investment. Every $100,000 of equity put into property that lies fallow costs you $1,000 in expenses just to keep up with inflation. And although keeping up with inflation is good, without the 4.1% income there is no way your $100,000 investment will grow to have the increased purchasing power of $273,000.

In financial planning, therefore, we consider fallow property as simply keeping up with inflation and holding its purchasing power. In reality it deteriorates about 1% a year, but we assume your costs of upkeep are factored into your standard of living expenses. Whenever you decide to sell fallow property, that money can be invested either in bonds earning 3% more than inflation or stocks earning 6.5% more than inflation.

A family's home, however, is not even worth that much. Some couples sell a large expensive home, purchase a smaller house and invest the difference. Many believe they will, but when the time comes, their downsized house is so much nicer that little is left over to invest.

Additionally, for many couples the value in their home is used as equity toward an assisted living arrangement. The larger their home, the more expensive the retirement community they buy into. For these and other reasons, we usually do not assume that the equity in a family's home will be available during retirement.

To reiterate, just because something costs a lot doesn't mean it is an investment. Investments should appreciate at a rate that grows faster than inflation and gains purchasing power. And spending your money on noninvestments can jeopardize a plan to reach your goals of financial freedom. Investments should work for you, paying you money that you can spend or reinvest elsewhere.

Help a Reader: How to Protect Savings

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

My husband and I both work full-time and make a good living.  I am an attorney at a large law firm and he is a real estate entrepreneur.  We have a new baby.  We’ve agreed to split our living expenses 50/50 and do whatever we want with what remains of our income after living expenses, which is a necessary compromise because we have opposite ideas on how to invest (I’m super conservative and he’s super risky).

Beyond maxing out my retirement plan, how else can I insulate my savings from my husband’s risky business ventures? I worry that I will lose everything if one of his businesses fails or he is sued by a tenant or employee.

What's your advice for her?

Reader Profile: Jane

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

I am 23 years old and single. I have had a few relationships that I thought could be serious, but nothing yet where both of us wanted to get married some day. I'm starting to feel like I have a good portion of my life sorted out except for this. In some way, I feel older than my peers who are 1-3 years older than me because I am doing well with my career, I have no debt, I have good retirement savings, and I am on track to buy a place in 1-3 years. This makes it really difficult to meet guys since sometimes I feel like I intimidate them.

My bachelor's degree is in Computer Science from a reputable university and I've been out of school for almost two years now. I graduated from university with a net worth of $32,000 and no debt thanks to internships and my parents paying for my education.

I am not American. This creates interesting problems in considering buying a house, in retirement planning, in investing, and in life planning. I don't know very many Americans who would strongly consider raising children in another country.
 
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

I work at a reasonable-sized software company and will gross about $115k this year after being $300 short of $100,000 last year. I expect to gross about $125k and $140k in the next two years, though both of those numbers could go up if our stock price does. I used a stock price slightly above its 52-week low in these calculations based on how it has been trending. I gross just under $8,000 each month in regular salary and then cash and stock bonuses make up the rest of my W-2 income.

Lately, I have been netting about $4,500 after 401(k) contributions, so I've been saving about $1,500 each month including ~$170 towards vacations. Since I plan on maxing out my 401(k) from the beginning of next year, I should net closer to $4,800 each month next year. I save the (net) entirety of my cash and stock bonuses, which summed to about $30,000 this year.

After one year out of college and buying a new car for about $20,000, my net worth was about $54,000. My goal for this year was a net worth of $100,000 and I should hit that in the next month or two. I'm trying to only set savings goals, not net worth goals past this point. This can be categorized as follows:

• Home country cash $7,000
• Home country retirement "CDs" $8,000
• US cash (checking and vacation savings) $7,000
• Savings $46,000: Emergency fund $20,000, Down payment fund $21,000, Auto loan + next vehicle savings $5,000
• Investments $27,000: Taxable $5,000, 401(k) $14,000, Roth IRA $8,000 (Allocation: 13% stable value, 52% US stocks, 35% International Stocks using Vanguard index funds)
• Auto loan $1,700

I live close to work, by myself, and I definitely pay for that, but it is very much worth it after my housing experiences in college. My housing expenses add up to about $1600 per month. I also play sports, plan for things like renewing my passport, driver's license, and vehicle tabs, plan for eating lunch out every day and have a healthy entertainment budget. Any funds left over each month in the ceiling categories go into savings, which usually adds up to almost $300. I'm not much of a drinker, so my entertainment budget more covers random household shopping, movies, books, and the occasional meal out with friends.

Fixed expenses (per month):

• Rent, hot water, sewer, trash, utility fees, water, and parking in my apartment building ~$1,500
• Comcast (basic cable + internet) $75
• Renter's insurance $9
• Auto insurance $133 (up from $105 this past year)
• Umbrella insurance $22
• Vehicle tab renewal $10 (paid yearly)
• Income taxes preparation $20 (paid yearly)
• Driver licensing $1.25
• Passport replacement $2
• Nexus card $1 ($50 every 5 years)
• Dental $5
• Medical $22 premium + $41 FSA (plus about another $5 this year)
• Eyebrow waxing $21

Total fixed: $1,862 (average real is about $1,710)

Variable expenses (per month):

• Electricity ~$17 (ceiling - can go as low as $10)
• Sports: $100
• Clothing: $300 (I have a pretty detailed breakdown by each type of garment that made up this number)
• Entertainment: $300 (ceiling - usually around $150-200)
• Lunches: $200 (ceiling - average is closer to $100)
• Groceries: $140 (ceiling - average is closer to $105)
• Dining out: $100 (ceiling - average is closer to $50 - this category covers when I'm too lazy to cook food, but eating out with friends is part of entertainment)
• Hair cuts $8
• Personal hygiene $20
• Amazon Prime $7
• New cell phone $9
• New computer $42
• Fuel for my car $48 (usually use about one tank per month)
• Parking meters $20
• Donations $50
• Presents $60 (Budgeting $200 each for my parents and sibling, spread out throughout the year)

Total variable: $1,421 (average real is about $1,000)

Total spending plan per month: $3,183 (average is about $2,800)
 
What are the current financial issues you're facing (saving, paying off debt, etc.)?

The biggest financial issue that I'm facing right now is having very little credit history. FMF and many other personal finance bloggers write about these awesome cashback credit cards that I can't have. I haven't been in the US for very long and I have been somewhat patiently trying to build credit history. I have a $1,000 unsecured card from two credit unions and a $700 limit on the Amazon.com Visa card. (One of my friends said that if I want to be able to get a mortgage, I need 3 sources of credit going back at least two years.) I'm not really sure of the best method to get these limits raised with minimal damage to my credit score. I have a feeling that charging around 10-15% to them each month at the most and just keeping them open for at least two years will be the most helpful if/when I try to buy a place.

I am saving towards a $100,000 down payment for a condo or a house. I'm not sure whether I will stay in the US for long enough that I should buy a house/condo/townhouse here, so I'm just saving the money for now. I will definitely hit a point in a few years where it might not make financial sense to keep renting with the amount of cash that I would have saved up for a down payment. (My current estimates forecast reaching this goal in mid-2014.) I'm going to re-evaluate this goal next fall, when my next apartment lease comes up for renewal.

I have a $20,000 emergency fund which I am trying to get up to $36,000 before I consider buying a house since if I lose my job and can't find another one, then I need to be able to make mortgage payments before I am able to sell the place. If I get a green card, I could cut this back to 6 months of expenses.

I am investing 20% of my gross income for retirement, including maxing out my 401(k) after talking to my cross-border accountant. I maxed out my Roth IRA this year, but I will likely not be eligible for the full contribution going forward and will thus invest in my taxable Vanguard account instead. I might up the 20% ratio as my income increases and/or I hit my down payment savings goal. I'm also considering not doing taxable investments next year so that I could buy a place sooner.

Since buying my car last year, I am putting $3,000 aside each year in case I need/want to buy a new car in 2020. I don't put a lot of miles on my car, so I figure it should be good for 10 years.
 
What are your plans for the future. (retire early, build your career, etc.)?

I am working on building my career because the income growth potential in my field is huge. Sometimes I wonder about the value of a Master's degree, but I don't think it would increase my earning potential. So far, I've been doing well with the stepping stones of my career. I've been taking a bit of a breather this year as I try to figure out what I want to do next. I think I might have found my next stepping stone. Between internships and the last two years of my career, I'm doing quite well so far. I sort of feel like I was pretty lucky to pick a career that I love and excel at from a young age and that the job market isn't that's bad in my field. I am also quite fortunate that it pays well.

So far, I've been pretty driven by my career and financial goals that I think I've neglected to think about life and travel goals. I have been at my company for long enough that I have accumulated some vacation time, so my goal is to take two 2-3 week trips next year.

Now that I'm about two years out of school, I'm starting to feel like I need to know what I want to do with my life outside of my career. I am good at setting financial goals and working to achieve them, but I'm completely terrible at life goals.

I don't know whether or not I will have children. If I don't, I could retire early, but I don't know how early I would really want to retire since I like my career a lot. If I do have children, I could probably afford to put them through college and maybe private school since I will have quite a healthy amount in retirement savings by the time I'm 30. That decision is somewhat of a moot point until I start talking marriage with some future boyfriend.
 
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

• Pick a career that you enjoy and pays reasonably. I find that I make random impulse purchases less frequently when I'm happy at work.


• Know yourself and the why behind your spending habits.


• Don't fix what's not broken.


• Your savings rate in your twenties is far more important than the growth rate. My net worth increases at this point are pretty much entirely what I save from my salary. (except for the investment losses...)


• If you don't know anything about investing, avoid individual stocks or index funds and just invest in a target date fund until you are more knowledgeable.


• No one cares about your money more than you.


• Spending money like your friends do will only make you temporarily happy. Spending money on things you like will make you happy for longer.


• Use your credit card like you would a debit card, but only spend no more than 20% of your card's limit before making a payment.

Oops, I guess that's quite a few pieces of advice! If I had to pick one it would be: No one cares about your money more than you.

Ten Insurance Policies You Need To Own

The following is a guest post from Hank who writes about personal finance on Money Q&A.

I wish I had more insurance coverage. How many times do you actually hear that or say that to yourself? Most people hate talking or even thinking about insurance. It isn’t a pleasant subject. In fact, more people would rather visit their dentist for a filling than think about the types or amounts of insurance that they need to purchase in order to protect themselves, assets, and families. There are an incredible number and array of different types of insurance policies that you can purchase and quite a few that you should own. You may look at the number ten and think that is just way too many, but when you get right down to it, they might be just right to keep you and your family protected.

Ten Insurance Policies You Need To Own

1. Disability Insurance – A third of Americans will find themselves disabled and unable to work at some point during their careers. In fact, almost half of all home foreclosures are a direct result of people being disabled and unable to work. While disability insurance may be an expensive addition to your insurance coverage, it is well worth having it protect your future income. You can choose to purchase long-term disability insurance that does not start until you have been disabled for over six months in an effort to save money on your premiums, but of course this assumes that you have a fully funded emergency fund in place to cover you until then.

2. Umbrella Insurance – No longer is umbrella insurance something that only the rich need to purchase. We continue to live in an ever-increasing litigious society that is quick to sue each other over the smallest issues. People mistakenly think that they will not be sued if they do not have much in the way of assets, but they often forget their most important asset of all, their future income. The cost of umbrella insurance is incredibly small for the large amount of liability insurance coverage that you obtain as a result.

3. Long-Term Care Insurance – Almost 70% of Americans will require some type of care such as an in-home nurse or a nursing home after they reach the age of 65. A year-long stay in a nursing home can cost $60,000 per year or more depending on the amenities. That can quickly eat up any savings or retirement nest egg that you have spent decades to accumulate. Long-term care insurance can provide you with money to live out your last years comfortably while not depleting your retirement portfolio that your spouse may later need.

4. Term Life Insurance – Term life insurance is one of the best deals in personal finance and provides an excellent amount of life insurance coverage for a specific period of time. There are very few needs in life for permanent insurance, and most people find themselves not requiring life insurance after their home mortgages are paid off and their children are grown. Term life insurance can fill the gap when you need life insurance the most while keeping your premium costs low.

5. Health Insurance – Not having health insurance is one of the fastest ways to find yourself in financial trouble and possibly on the way to bankruptcy. One accident or significant illness without coverage can leave you holding hundreds of thousands of dollars in medical bills if you are not careful. If you are recently out of work and without coverage, you may want to consider purchasing COBRA insurance coverage for you and your family or even catastrophic health insurance coverage until you can hopefully receive coverage through a group plan with an employer.

6. Renter’s Insurance – Homeowners with mortgages accept homeowner’s insurance as a fact of life, but far too many renters go without purchasing renter’s insurance. This is a huge mistake. For as little as $20 per month, you can purchase renter’s insurance that will protect your assets from theft, fire, liability, and many other disasters. Renters often mistakenly think that their landlord’s insurance policy will cover them, but the policy only provides protection for the building and not your items inside your rental home or apartment. Too many renters are risking huge losses by not owning inexpensive renter’s insurance.

7. Flood Insurance – Flood insurance is not simply for homeowners who live in a flood zone. In fact, FEMA estimates that one third of all homes damaged by flooding are not even in a flood zone or near a body of water. Flood insurance is very cheap, costing just a couple of hundred dollars per year, if you do not live in a federally designated flood zone. It is a critical piece of insurance protection that too many homeowners are lacking.

8. Earthquake Insurance – Most homeowners realize that their typical homeowners insurance policy does not cover them for earthquake damage, and many simply think that they do not need coverage because they live so far from a fault line. But, the unusual recent earthquake along the northeast coast of the United States shows that earthquakes can strike almost anywhere in the country. You could find yourself paying a hefty amount out of pocket if you are not covered and an earthquake damages your home.

9. Rider Or Floater Insurance – Did you know that your homeowner’s insurance and renter’s insurance only covers a small amount of losses on specific items such as electronics, artwork, and jewelry? In many cases, the amount of coverage in a basic homeowner’s insurance policy is limited to as low as $2,500. One nice engagement ring and wedding band can quickly eclipse your coverage limits, but you can add a floater insurance policy or a rider on your current homeowner’s insurance that can add extra insurance coverage for specific items. These insurance policies are called riders because they ride the coattails of your primary policies, and the additional insurance can be bought for a very low sum.

10. Title Insurance – Title insurance is something that homeowners are very familiar with, but you can also buy title insurance for other large purchases as well. If you are considering purchasing an expensive used car, for example, you may want to consider buying separate title insurance as well. Like purchasing a home, title insurance can protect you from a fraudulent seller or undisclosed damage to the property that would ultimately make reselling it a nightmare.

Do you really need ten different types of insurance policies? Maybe you do and maybe you don’t. But, do the risks of not having these policies outweigh their costs? In many cases, you are taking potentially devastating financial risks by not having these insurance policies in place even though they ultimately have very low premium costs. The benefits of owning these insurance policies far outweigh their costs.

Seven Holiday Shopping Mistakes

The December issue of Consumer Reports lists the following holiday shopping mistakes to avoid:

• Going over budget
• Fighting the crowds
• Taking on too much debt
• Paying for a warranty
• Forgetting to haggle
• Relying on gift cards
• Overlooking return limits

Here's what I do on these:

• We have a budget for Christmas gifts, but it's rather flexible. So if we spend a couple hundred extra dollars, it won't be a problem.


• I HATE crowds, so I do a few things to fight them. First, I do more and more of my shopping online each year. Amazon is my site of choice since I can bundle products from many different categories. Second, in past years, I've taken a day off work and done almost all my shopping on one single day (when fewer people are in stores). And finally, I shop on weekday nights if I have to -- and avoid weekend shopping like the plague.


• We save in advance for all of our purchases, so taking on too much debt is never an issue. We pay for our purchases with either credit cards or gift cards purchased with credit cards, then pay off all the credit cards when they are due.


• The last time I paid for a warranty was a ba-zillion years ago. The last time I needed a warranty was before that. One warranty tip: Costco adds an extra year onto the manufacturer's warranty on electronics purchases (we got our last TV and computer there.)


• I forget to haggle during the holidays. It's because most of the stuff I buy is on sale/discount anyway, so I guess I don't think of it. Plus, time is money and who really has the time to wait for a clerk to check with his manager back-and-forth? Not me.


• I know many people hate gift cards (and I've had my own battle with them -- and still have some cards I received last year.) That's why I give gift cards that I KNOW the person will use (for example, a Menard's gift card is my go-to choice for my hard-to-buy-for dad) or ones that have the broadest appeal (like Meijer or Walmart) where the recipient can use them to buy almost anything. IMO, it's when you get a gift card for a specialty store you rarely visit that's the major issue.


• I save all receipts and keep them for a month or so after Christmas -- longer on big-ticket items. I've never had a problem using this system.

How about you? Do you have any tips for making the most of holiday shopping?

Should You Include Volunteer Work on a Resume?

Fortune discusses the issue of whether or not you should include volunteer work on your resume. Their thoughts:

Increasingly, corporate bosses like Ready are taking note of job candidates' volunteer efforts. They recognize that in the recent recession, talented employees may have had stretches of unemployment that they filled with unpaid work. A recent LinkedIn survey found that 41% of hiring managers consider volunteer experience equally valuable as paid work.

"People are wondering whether it's considered as legitimate as paid work experience," says Carol Fishman Cohen, co-founder of career reentry programming company iRelaunch.com. "What we're hearing on the employer side is that if the volunteer experience is relevant to your career goal, include it."

Some volunteer experience at well-known organizations can instantly signal your ability to follow through on a challenging goal. Whenever Marty Scheller, partner of Scheller's Fitness & Cycling, sees that a job candidate achieved the rank of Eagle Scout, he calls that person in for an interview at the Louisville, Ky., retailer.

Some argue that job applicants should think twice about including volunteer experience related to the often-touchy subjects of religion, politics, and sexual orientation.

In other words, there are pros and cons to including volunteer experience on your resume.

Here are my thoughts on this issue:

• The key question to ask in whether or not to include volunteer work on your resume is "will it make my resume stronger and give me a better chance to get an interview?" If the answer is "yes", use it. If the answer is "no", don't?


• What sort of volunteer experience will make your resume stronger? One that demonstrates great accomplishments and skills that will be needed in the job you're applying for. Accomplishing something "big" and with a name-brand organization helps too. For example, let's say you're applying for a job that requires a lot of organizational skills. If you volunteer to run a major fundraiser (requiring a lot of organization) and do it well, then it's worth considering. If you raised $1 million while doing so, that's even better. And if you did it for the American Cancer Society, that's even better.


• I would NOT include any volunteer experience where you worked for a political, religious, etc. organization unless you were 100% POSITIVE the people who saw it would view it as positive. For instance, you could include the fact that you ran Barak Obama's successful Illinois campaign if you were applying to work for the Democratic party. But it would probably be a bad idea to do so if you wanted to work for the national Rifle Association. In most cases, you'll be interviewing with Democrats and Republicans, Christians, Jews, and Muslims, straight and gay people, etc. Why kill your application by including something someone might find offensive?


• That said, there are many volunteer organizations that most people will find neutral. Many of these are health/cure-related charities like the American Cancer Society, American Heart Association, and so on. Then again, there will be people that object to even these. So be careful before you list anything.

I personally have never listed volunteer information on a resume, though I have talked about volunteer experiences in interviews. This usually comes about when the interviewer asks what I do outside work. If I sense that she will be fine with me mentioning the organization I have worked with, I tell her how I've volunteered and what was accomplished. It's another good way to reinforce that you're a person who has skills and can get things done (which is what almost any organization is looking for.)

Have you ever listed volunteer experience on your resume or discussed it in an interview? Was the result positive or negative?

What I'm Doing Now Financially

I thought it was time to give you all an update on what I'm currently working on from a financial standpoint. Here goes:

• Still saving and investing (would you expect anything else?) My 401k is fully funded and money moves from my checking account to index funds at Vanguard each month. All of this happens automatically.


• I am using my debit card 10 times a month so I can earn 3% on my credit union super-interest checking account.


• I am using a host of credit cards to maximize my cash back including my new Chase Sapphire card. I hope to use the $625 signup bonus to pay for our flights (in part) to our cruise destination.


• The cruise itself is taking on a life of its own. I have the passports and all our documents. My wife is working on transportation to the port and back while I'm working on excursions.


• I'm finalizing our year-end giving, including the donation we owe to the Salvation Army. It's not too late for you to get matching gift funds when you give as part of my $5k Red Kettle Challenge.


• I'm in the (never-ending) process of listing all of our accounts, passwords, etc. in one place for my wife. It's a painful process getting it all together.


• I'm meeting later this month with a new CPA. I'm considering switching firms. I'll give you the details on that if and when it happens.


• I'm starting to think about colleges -- strategies, costs, options, etc. -- for (and with) my kids. We've also started answering "ACT questions of the day" together. ;-)


• Each month I update my net worth (automatically via Quicken.) Needless to say, this year has been a bumpy ride with the stock market going way up then way down then way up and so on. I'll give an update early in 2012 on where things sort out.

I'm probably forgetting a couple things, but these are the highlights.

How about you? What financial moves are you making these days?

Black Friday Myths

The following is a guest post from Andrea Woroch.

The hype surrounding Black Friday seems to get bigger every year, especially as advertising for the shopping holiday continues to creep. Shoppers are being inundated with Black Friday deals, and it’s easy to let the dream of amazing savings overshadow rational purchasing behavior. Hence the mile-long queue in front of Best Buy at 3am.

While there are some great discounts to be had the day after Thanksgiving, there are many myths surrounding this sleep-depraving holiday which you should note before setting your alarm.

1. Black Friday features the lowest prices of the year.

Not exactly. While some products will not see lower prices after Black Friday, door-buster items like name-brand TVs are actually cheaper in December, when retailers begin selling New Year’s models. Toys and winter apparel are also priced at their lowest post-holidays, according to FreeShipping.org’s Best Time to Buy Guide.

2. Black Friday deals are best in-store.

Why else would people camp out on a dirty curb at sub-freezing temperatures? Many of the door-buster items advertised are in limited quantity, say only five per store, and are considered "loss leaders" -- the products a store is willing to loose money on in order to lure customers from their cozy beds and get them in to buy more expensive products. The fact is, Black Friday deals are available online and don't require you to step foot outside to take advantage of the offer. Last year, Macy’s offered the popular KitchenAid mixer for $179.99 online, and Best Buy offered its door-busters online Thanksgiving Day. 

3. Black Friday sales are starting earlier than ever and that means more deals to be had!

Major merchants like Walmart recently announced an earlier jump than ever on Black Friday with doors expected to open at midnight following Thanksgiving dinner. Though a shopping spree may wake a shopper from their turkey comma, the advertised early sales are simply a marketing and pr stunt to get attention and create a sense of urgency among consumers.

4. Black Friday is the most lucrative holiday shopping event.

Cyber Monday takes the cake on this one, actually, becoming the first day in history to eclipse the $1 billion level in 2010. In fact, Free Shipping Day surpassed Black Friday’s sales by $300 million in 2010, and is slotted to go head-to-head with Cyber Monday this year. The free shipping holiday happens on Friday, Dec. 16 this year and expects over 2,000 merchants to participate.

5. Black Friday deals are only offered on Black Friday.

Amazon will once again manage Black Friday Week, where deals are available from Monday, Nov. 21 through Friday, Nov. 25. Though the retailer has yet to announce its 2011 Black Friday schedule, Walmart offered online-only deals on Thanksgiving Day last year.

6. Black Friday is the best day of the year to shop.

While this year’s metrics remain to be seen, Black Friday isn’t always the best day of the year to shop. In addition to Cyber Monday and Free Shipping Day, the Saturday before Christmas is often the busiest shopping day of the year as consumers frantically grab last-minute gifts. With retailers offering spruced up price matching programs (for instance, Sears guarantees to meet competitor's lower price along with an additional 10-percent off) along with other value-driven promotions, savvy shoppers who do their homework can score door-busting deals throughout the season.

The Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, Your Do over Guide: What Would You Do Differently?

Enjoy!

THANK YOU!!!!!! (And Another $5k Match)

I just want to say a HUGE thank you to all the FMF readers out there! Due to your generosity, we surpassed the goal in my FMF $5k Red Kettle Challenge in less than a week! Thank you so much for giving to help the poor and needy. Your kindness is such an encouragement and so appreciated.

Since you all have been so generous, you've inspired me to go above and beyond as well. That's why I have decided to add ANOTHER $5k to be matched. Now we have the FMF $20k Red Kettle Challenge (a total of $10k given by readers and a total of $10k to be matched by me.) So please keep giving -- and let your friends know about the challenge too!

BTW, I'll be making the first match later today just in case anyone was wondering. I'll be giving the $5,000 I committed to plus $50 two Canadian readers sent me because they couldn't donate using the online system.

Reader Profile: TH

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

I am a 38 year old single mom, with full custody of my 2 boys aged 13 and 11. I have found that I have a passion for finance and budgeting. I got divorced about 5 years ago after 10 years in an unhappy marriage. Though I left the marriage with a $19,000 debt because of my ex's secret spending, my emotional load is much lighter! I am now in a great place emotionally, have paid off my marriage debt and bought a house on my own.

Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).
 
I work as an office administrator and make approximately $50,000 per year after taxes. I purchased a three bedroom home last year and have a $161,199 mortgage (original purchase price $173,000). My payments are $225.36 per week, including all city/school taxes.
 
I have about $2,000 in consumer debt at 0.9% interest for the next 2 years. I have $3600 in retirement savings in index funds, to which I contribute $200 per month.
 
I have a $1000 emergency fund (not much but a start!).
 
My car (2005) is 100% paid for.

I have education funds for both boys opened by their grandfather with enough in them for college tuition and books. My eldest son mows lawns, and does just about anything to make a bit of extra money. This past summer he squirreled away almost $600 for school field trips and extras he needs.

Our family expenses all-in are about $3600 per month.

What are the current financial issues you're facing (saving, paying off debt, etc.)? What are your plans for the future (retire early, build your career, etc.)?
 
Saving is a hardship as my budget is stretched pretty tight. I often end up working a second job to attain my saving goals for a given month. We need a few renovations in/around the house (bathroom, basement, repaving the driveway, etc.) totaling $11,000. I have about $1400 saved so far. My goal is to grow this amount as fast as I can. Some of you may ask, why buy instead of rent? Rent here is pretty steep, around $1200 per month for a small apartment, $1600 to rent a house. For the same price (or less) I can have a house, which is an investment too, so it was a no-brainer!
 
Future plans financially are to renegotiate a lower interest rate for the mortgage (in 4 yrs), grow my emergency fund, and add to my retirement fund.
 
What's your best piece(s) of financial advice and/or your general philosophy on personal finances?

My philosophy on personal finance is that it is like a garden. The more you care for it and tend to it, the greater fruit you will see.Keep an eye on your money, even if your spouse takes care of the finances!

My best advice is to our youth:

• Stay in school, get the best grades you can. This may not sound like financial advice, but it is. Your ability to find a higher paying job is increased exponentially by having a degree. Good grades allow you more choices in the school you attend and programs available to you.


• Work hard at a young age. Save 40% or more of everything you make from your first babysitting/lawn mowing job to the minute you move out. Then keep saving 20% or more. Money does not buy happiness, but does buy piece of mind!


• Work first, play later. In a world where most young people feel "entitled" this is a foreign concept. My dad bought his first new car when he was 50! He'd earned it by then. Driving a rust-bucket is good for the soul. Especially if you paid for it yourself!

Biblical Contentment

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

The members of the Christian Financial Alliance recently attempted to define "biblical contentment". Here was my response:

“[It is] being at peace with who you are. In a financial sense, that extends to being at peace with what you have/own as well.”

Really, to me, being content is being happy with what you have -- whether it is a little or a lot.

This doesn't mean that you are not trying to improve your lot in life but that you are happy and peaceful no matter what your financial status.

What's your take on the issue? Do you agree or disagree with me?

The Dangers of Life Insurance Policy Loans

The following is an excerpt from The Questions and Answers on Life Insurance Workbook: A Step-by-Step Guide to Simple Answers for Your Complex Questions.

Policy loans can be a useful short-term option when immediate cash is needed, but they are not the long-term solution so widely proclaimed. In fact, policy loans (available with most, but not all, forms of permanent life insurance) are one of the most complex, misunderstood, and misused components of a life insurance policy. Out-of-control policy loans can erode a life insurance policy over time, eventually draining the death benefit—and saddling you with a substantial tax bill.

Here’s a frightening example. As part of a divorce settlement, a woman owned a whole life insurance policy that had been issued to her ex-husband in 1967, who was 38 at the time the of issue. The death benefit was $100,000 to be paid upon death or at age 90.

Make Me Give Away $5k (Or More!)

Just reminding everyone that my $5k Red Kettle Challenge is still going on. As of this posting, we're over $4,000. It sure would be great if we hit $5k by Monday. If we do, I'll come up with more money to match. ;-)

If you'd like to donate, you can do so by going here.

Thanks to all of you who have given so far and those of you who will in the future!

Five Ways to Give Gifts People Want

Anyone else out there get frustrated trying to find holiday gifts for someone who "has everything" or "doesn't want anything"? Me too. So you end up buying something that's probably not a great gift -- but you hope that it's at least "good". Ugh.

So what do you do about it? Here are some suggestions:

1. Ask for lists. Each year we have our kids write out lists detailing what they want for Christmas. They understand that these lists are guides for us and that we aren't guaranteeing they'll get only things from the list. They also understand that they won't get everything on the list (of course.) We even tell them that we will be spending the same amount on each of them and ask if they prefer a smaller number of gifts with higher than average value each or a larger number of gifts with smaller than average value each. (My son takes the former and my daughter the latter.) Anyway, we then know that we're buying them something they want because it's on their list.

2. Shop for others. Last year my wife and I did the shopping for our kids' gifts for both sets of grandparents. They gave us a budget, we bought the gifts, we wrapped the gifts, and we delivered the gifts. They saved the time and effort (plus postage) and were sure the kids got what they wanted (because, again, we had lists from our kids.) I think we'll do the same thing this year since it worked out so well.

3. Buy your own gifts. I know I am a difficult person to buy for. I have almost everything I need, I don't want much, and when I do want something I'm very picky about it. So it's often a losing proposition to buy me something. That's why many of my gifts (from my wife to me) are purchased by me. I get what I want, buy on sale (or use coupons), and save her a ton of effort. Sure, I don't get "surprised" when I unwrap the gifts (yes, we wrap them), but at my age surprises are over-rated. ;-)

4. Use gift cards. For people who are hard to buy for (like my dad -- I know he likes Menard's, though), those you don't know anything about (postman, newspaper lady, etc.), and/or those who are far away (saves postage and having to wrap a gift/box), gift cards are often the perfect solution (assuming you know the sorts of places they like to shop.) They seem to become a bigger part of our Christmas budget every year. And earning 6% cash back on buying them is a nice bonus too.

5. Give money. Yes, cash can be crass, but cash is also king. And if it's too "boring" or "tacky" to give cash or a check, you can be creative by giving gold dollar coins instead. These are always a hit. We put them in a creative package that's also a gift: a wooden "treasure box" filled with sand or small piggy bank -- both of which can be purchased on sale at Hobby Lobby stores many times throughout the year -- make these gifts extra special and fun.

How about you? What do you do to make sure those you give gifts to get what they want/need?

Star Money Articles and Carnivals for the Week of Nov 14

Here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week. We'll start with links from sites who contributed to my FMF $5k Red Kettle Challenge:

• Wealth Informatics tells how to help a charity without spending money.
• Bible Money Matters details what the Bible says about our financial lives.
• Bucksome Boomer tells how to survive holiday travel.
• Budgeting in the Fun Stuff says persistence is the key to money.
• Wise Bread lists some tricks that will save you money.
• Stack the Chips tells how to negotiate a discount.
• Maximizing Money has an interview with Betterment CEO Jon Stein.
• Sustainable Personal Finance tellls about the benefits of biking to work.

Now here are the carnivals:

• Carnival of Personal Finance
• Totally Money Blog Carnival

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.

Do You Collect Anything?

Yahoo lists nine completely worthless collectibles as follows:

• Hummel Figurines
• Beanie Babies
• Franklin Mint Collectibles
• Hess Trucks
• Thomas Kinkade Paintings
• Precious Moments Figurines
• Norman Rockwell Plates
• Lladro Statues
• Cabbage Patch Kids

I haven't had much experience with any of these. My mom did collect Beanie Babies when I was in college and she has given us several Precious Moments figurines, but other than those, we draw a blank on all these collectibles. As such, I can't really comment on whether or not there's money to be made by collecting the items above. My guess is that people buy them more for the collecting aspect than for the chance of actually making money. And I'm perfectly fine with that. If people want to collect things as a fun hobby, that's their choice.

But I think many people get into "collecting" thinking that they'll buy some items at "X" price, hold on to them for several years, then be able to sell them for 4X (or some other multiple of what they originally paid.) But in my experience, it hardly ever works out that way. In most cases, people buy at "X" and sell at 25% of "X".

Anyway, I've never been a collector, though I did like collecting a few coins when I was a kid. How about you? Any collectors out there? Do you collect simply for the love of it or to try and make money as well? If the latter, have you actually made money?

Your Online Pictures are Worth 1,000 Words (and Even More Money)

The Wall Street Journal has an interview with an expert from LinkedIn. She lists several tips for managing your online career profile and, in particular, stresses the importance of having and managing great pictures of yourself. Some key thoughts:

• First, you should have a profile picture. LinkedIn research shows that a page with a profile picture is seven times as likely to be viewed as a page without one, she says.


• It's best to have your profile picture feature you alone, not your pet or significant other.


• The way you are dressed should reflect the norms of the profession that you're in or hope to join.


• "What you don't want is to meet with a client or walk into an interview and have the person say, 'I wouldn't have recognized you, you look so different.' "


• Posture can speak volumes, Ms. Williams says. "If you're sitting up straight, your shoulders are back, you're smiling and you have open eyes, you're nonverbally communicating that you're confident, competent and have a curiosity about the world," she says.


• While people often post photos of daily minutiae such as food, Ms. Williams is careful to post only photos that relate to her own image, have "a great story attached," or have a point she would like to make.


• Even the most carefully managed social-media profile can be ruined by a photo someone else thoughtlessly posts. Ms. Williams is always on the lookout for photos in which others have "tagged" her or identified her by name. Recently, she was horrified when a relative tagged her in a picture showing her drinking wine at a family party. "I have professional people on this network—I don't want them seeing what I'm drinking on a Sunday afternoon," she says. She immediately untagged herself.

Yes, it's a lot to manage. But well worth the effort if you're using your profile to network for businesses purposes.

Here are a few thoughts from me on these suggestions:

• Do people really put their pets and spouses in pictures on a site that's meant for business/professional connections? Yikes!


• It seems to me almost standard practice that people who are in business, and especially those in consulting/professional services (like speaking, etc.) use a photo that's from 10 years ago or so. I have seen so many people pictured one way, then they look totally different in person. Has anyone else experienced this?


• She addresses the "what if someone else posts a picture" question that's come up here from time to time. This is one way to handle it. Another is to not be photographed in situations you wouldn't want shown on the web.


• I still haven't signed up for LinkedIn. Am I missing something -- or am I saving myself the headache of having to manage another site?

What's your take on the advice above? Anything you'd add to or take away from it?

The Different Types of Permanent Life Insurance Policies

The following is an excerpt from The Questions and Answers on Life Insurance Workbook: A Step-by-Step Guide to Simple Answers for Your Complex Questions. Since this is a workbook (meant for you to fill in sections of it), you can't get the full meaning/impact in a basic blog post. But I think you'll get most of the key ideas.

Think of a permanent/cash value policy as a bucket into which you pour liquid money. The bucket has a spigot at the bottom, and the company turns the spigot to drip money out of the bucket to pay for the expenses associated with the policy, such as cost of insurance (COI)/mortality expenses and other expenses (including overhead and other policy specific fees). Meanwhile, money left in the bucket earns interest at a rate declared by the company. It’s your responsibility to keep enough money in the bucket (by making adequate, timely premium payments) to pay the policy expenses as they come due. Even though you must put enough money into the bucket to keep the policy in-force (otherwise it will lapse), there is complete discretion as to when premium payments will be made—annually, semiannually, quarterly, or monthly—and in what amounts—depending on how often payments are made and whether you have the option (as with some policies) to choose your payment amount based on a range provided by the insurance company.

There are a few different categories of permanent life insurance, and each category may present multiple options. It would be impossible to cover all of those here, so please review the content on permanent policies in Questions and Answers on Life Insurance if you are considering this path. Here I will outline the basic information for the most common forms of permanent life insurance and help you determine which category of permanent life insurance may be best for you.

Review the following information, check those types of insurance that are most interesting to you, and then perform the self-assessment at the end of step 2 to determine which types of policies will really meet your needs and preferences.

Whole Life

With whole life, the insurance company promises to pay a certain death benefit upon your death, regardless of when that occurs, up to a certain agreed-upon age based on mortality and expense projections, along with dividend scale assumptions. All three components are projected and integral to a whole life policy. The company often pays you the full face value of the policy if you live to the end of the specified mortality table, which, as its name suggests, tabulates your life expectancy based upon your age and health. But this isn’t always the case and is not always spelled out in the contract. With most forms of whole life, premium payments are made for life at a fixed rate, and the policy cannot be canceled as long as you pay the premiums on time. The cash value normally increases at a consistent rate so that it equals the face value at the age at which the policy expires. Loans against this cash value are often available. Whole life is less flexible than are other forms of permanent life insurance, and the premiums are often higher than some other forms, such as Universal Life.

In Questions and Answers on Life Insurance, I go into great detail about the many and varied forms of whole life insurance options, including Endowment, Limited Payment Whole Life, and Indeterminate Premium Whole Life. However, in the interest of keeping the process in this workbook manageable and succinct, I explore in the following pages just two types of whole life, which are appropriate for most people: Current Assumption Whole Life and Participating Whole Life.

Current Assumption Whole Life

Current Assumption Whole Life policies make use of a current dividend scale in setting the cash value, along with an indeterminate premium structure. The dividend scale is not fixed—it does change—and is usually declared on an annual basis by the insurance company. The gross premiums are fixed, while the net premiums can sometimes be reduced/offset by dividends.

Participating Whole Life

All whole life policies are either participating or non-participating. A participating policy charges a higher premium and in return pays you regular dividends. Dividends are not guaranteed and depend on the company’s actual investment return experience with all of their in-force policies. Dividend options include:

• Cash
• Purchase of fully paid-up life insurance in small increments with each dividend
• Reduction of the next premium payment
• Retention by the company at interest
• Purchase of one-year term insurance in an amount equal to the cash value at the time of purchase.

A trade-off for dividends is with higher or lower or no further premiums. The policyholder under some policies can have the option at some point to switch his or her dividend option to reduce or pay premiums in full. The higher premiums are for particular policies (not always an option) where they are called “limited payment,” though not guaranteed limited payment.
 
Universal Life (also known as Flexible Premium/Adjustable Life)

The biggest difference between Universal Life (UL) and whole life is that UL gives you considerable flexibility as to the amount and timing of premium payments. And the face amount of coverage can be changed (down at any time, up with evidence of continued insurability).

UL is unique in the sense that this type of policy “unbundles” the pricing elements that make up a traditional cash-value permanent policy—interest earnings, mortality costs, and company expenses—and prices them separately. Ideally, this gives you better transparency into the moving parts of your policy. In practice, however, this can get a little complicated. With a traditional whole life policy, you have but one responsibility: to pay the premiums when due. If premiums are paid when they come due, the policy will never lapse, and eventually it will mature as a death claim, period.

UL is different. If the policy owner fails to fund it adequately, UL may turn out to be temporary rather than permanent life insurance. The company may change pricing elements subject to certain limits set forth in the policy. So the company may raise the expense charges and mortality costs and lower the amount of interest credited to the accumulating funds. If these policies are handled incorrectly, they can turn out to be more expensive as you grow older, the cash value can erode, and the policy could end up lapsing if premium payments aren’t high enough to continue to fund the policy (remember the bucket analogy from the beginning of this section). Most UL policies sold prior to the mid-1990s were based on the assumption that the higher interest rates of that era would continue indefinitely. Falling interest rates mean that many of those policies are destined to lapse long before the policy pays off as a death claim due to inadequate premium funding. Furthermore, some UL companies have subsequently increased their mortality and expense charges to levels higher than those illustrated when the policies were originally issued.

Therefore, it’s essential with UL policies that you order an in-force illustration at least every 2 or 3 years, as it’s the only effective way to monitor the progress of a UL policy. (Sample request letters for this purpose are provided in step 7.) An in-force illustration is a report of current values and assumptions compared with guaranteed minimum values.

Guaranteed Universal Life

Guaranteed Universal Life policies comprise one of the fastest growing segments of the life insurance industry. These policies guarantee the death benefit as long as all scheduled premiums are paid in full when due. These policies may or not accumulate a cash value—they are designed to provide coverage past age 95/100 and up to age 120. Most insurance policies will terminate (mature) at age 95 or 100 and cash out at that time, leaving the insured to self-insure. In essence, they function as a lifelong term life insurance policy, where you have the option to accumulate a cash value. A note of caution: if you miss a scheduled premium or pay less than the total premium due, you may lose the guaranteed death benefit.

Equity-Indexed Universal Life

Equity-Indexed Universal Life (EIUL) is a newer form of UL insurance that is extremely complex and combines elements of variable life (which you’ll read about next) into the mix. Thee main differences between this and traditional UL is in how excess interest is credited. Most EIUL policies have two separate accounts that can be used to credit interest. One account has a fixed interest rate that is declared by the insurance company periodically. The second account provides an equity index option that offers you the opportunity to earn rates of interest based on positive equity (stock) market returns. However, the cash value of the EIUL policy is not exposed to losses due to negative market returns.

The amount of interest credited to your cash value is tied to the performance of the policy’s particular equity index. Companies use a range of indexes that include the S&P 500, Dow Jones Industrial Average, Lehman Brothers Bond Index, and FINRAAQ. In years where the index performs well, the interest credited to the policy’s cash value rises, and in years where the index performs poorly, the interest rate falls. Typically EIUL policies guarantee that the interest rate will never fall below zero so that the policy won’t lose money if the stock market index declines.

The first thing to watch out for is that these policies usually have a cap or limit on the amount of interest that can be credited to your policy. Therefore, if the cap is 10 percent, and the index return is 14 percent, you will only earn 10 percent. The reasoning is that this would offset the liability the life insurance company assumes in years where there is a negative return in the stock market index.

The insurance companies can, at their discretion, also adjust what is called the participation rate, so that a policy owner receives a lesser percentage of the total return. This is an important thing to look for. Some companies will offer a 100 percent participation rate guaranteed for the life of the policy. But if a policy has an 80 percent participation rate, and the policy has a cap of 10 percent, the most you will ever earn on the policy is 8 percent (80 percent of 10 percent).

There are also different indexing methods that are used in measuring the market return, which you should understand before signing a policy. You can learn more about those methods on my website.

Variable Life and Variable Universal Life

As with Universal Life polices, Variable Life and Variable Universal Life policies provide death benefits and cash values to beneficiaries. But here’s the crucial difference: whereas the premiums paid into most standard UL polices earn interest within a life insurance company’s General Account, as it’s known, Variable Life policies earn interest on a portfolio of investments that you as the policy owner choose from a selection offered by the company (key: check the selections). In addition, a Variable Life or Variable UL policy may be surrendered for its cash value at any time, and the policy owner also has the option of exchanging the policy for an annuity contract.

Depending on how financially savvy you are, selecting your own portfolio can be an acceptable aspect of this type of policy or a very dangerous one. When an insurance company invests your premium into their General Account, it bears the risks inherent to investing, and credits your policy with interest based on the account’s performance. There’s no direct link between the company’s investment portfolio and the declared interest rate on your policy. But with Variable Life policies, there’s a direct link between the cash value of your policy and the performance of the portfolio of sub-accounts you choose. You bear the risk. The cash value and death benefit of your policy is not guaranteed. (But some policies do guarantee that the death benefit cannot fall below a minimum level.) So if your portfolio does well, the earnings on the cash value of your policy may exceed what you would have earned through a standard UL. But if the performance of your portfolio tanks, you’ll have to put in additional funds to keep your policy in force. That can get pricey, and could endanger your policy.

While you may see tax advantages with this type of policy—you are earning returns or income that you do not have to pay taxes on—there are fees associated with the policies that may offset the tax advantages. Federal and state premium taxes average around 3 percent of premiums. Mortality and expense charges assessed against cash values can range from .6 to .9 percent. Asset management charges can vary from .2 to 1.6 percent. And surrender charges can typically exceed the first year’s premium and last 10 to 15 years.

Overall, the costs of Variable Life policies can be higher than other types of permanent policies.

You’ll get a legally entitled prospectus from an insurance company before you purchase either a Variable Life or Variable UL policy. And you’ll definitely want to read it, even though it’s lengthy and tedious to pore through. If you have a tough time understanding it, find someone who does who can explain it to you. (But if you have to do that, ask yourself: Is this the right kind of policy for me?) Many factors affect the performance and well-being of a Variable Life or Variable UL policy. For advice on the investment accounts, always consult a properly licensed financial/investment advisor.

Joint-Survivor (Second to Die) Life Insurance

Joint-Survivor Life is a type of coverage that can be a part of any type of permanent cash-value policy. This type of coverage insures two people (usually spouses) and pays a benefit only at the second death. It’s used primarily for estate planning purposes, as the estate tax is usually only payable at the second death.

Free Coffee for You Coffee Lovers

Starting tomorrow (November 17) through Sunday, Starbucks is having a buy one get one free coffee offer. The details:

Buy one holiday drink, get one of equal or lesser value free.

November 17 - 20, 2 -5 p.m. at participating Starbucks locations.

Flavors:

• Peppermint Mocha -- Peppermint lovers rejoice! Your holiday favorite is back.
• Caramel Brulée Latte -- Warm up with sweet, caramel goodness.
• Gingerbread Latte -- Enjoy the flavor of freshly baked gingerbread.

I'm not a big coffee drinker, so I'll pass. But if I was to buy one, it would be the caramel flavor without question!

Also I'd go to my grocery store and get a Starbucks card first -- so I could get 6% cash back on my purchase. ;-)

Hat tip: The Centsible Life.

12 Things We Buy in a Bad Economy

Moneyland lists 12 things we buy in a bad economy as follows:

• Romance Novels
• Donuts
• Nail Polish
• Halloween Costumes
• Fast Food
• Lottery Tickets
• Generic Drugs
• Chocolate
• Vegetable Seeds
• Condoms
• Yoga
• Pets

And here's what they say specifically about pets (it's just too crazy for me to pass up):

This year, we’re expected to spend more than $50 billion on our pets, which would be a record. According to the American Pet Products Association, pet spending has increased every year since 2001, and only once by less than 5%. Oh, and we’re planning on spending $300 million just to dress them up for Halloween.

Yeah, right. $300M so Fido can wear a carrot costume. Ugh.

Anyway, that's a pretty interesting list, isn't it? I don't buy most of those products, but here's where I stand on the ones that I do:

• Donuts -- I must say I have been to Krispy Kreme more this year than last. However "more" is three trips this year versus one last year.


• Fast food -- About the same. We buy most of ours when we're out refereeing soccer and need a quick bite or on the road for a long trip and want a short stop.


• Generic Drugs -- We buy generic drugs whenever we can -- good or bad economy.


• Chocolate -- Ditto for chocolate...

How about you? Are you buying more of this stuff lately? Do you think this list is even valid?

Reader Profile: Jen

The following is the latest post in my "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. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

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

Please tell us a bit about yourself.

I'm 27, married (husband is 28) with a 1 year old child.  We currently live in the beautiful and relatively cheap state of Kentucky, in one of the largest cities in the state.  I work full time managing the external marketing for my company.  I have a duel BA in Marketing and Business management from a state school.  My husband also works full time leading a client relations and sales team for a large international organization.  He has a BA in Account and Management from the same state school as me as well as an MBA from larger state school.  Both of us are fairly secure in our positions.  I recently changed jobs resulting in a 30% increase in my salary.  My husband is hoping that recent changes at his job will results in a promotion for him as well at the end of the year, but at this point there isn't anything concrete.
 
Describe your financial situation (who works in your family, how your income is (general), how your expenses are, etc.).

As mentioned above, we both work.  My career has progressed a little quicker than my husbands and I recently began a mentor ship with my company's CEO to help in furthering my career.  My husband's career has been steadily growing, but he has not been paid to market value which is a big issue for him.  He has looked for other jobs but unfortunately the local job market isn't huge and hasn't produced any jobs in which he's interested or qualified.  Collectively, we bring home approximately $5K a month after taxes, 401K, and pretax dependent care benefits, and health insurance. 
 
We own our home, but not by much.  We were young, naive, and ill prepared when we purchased our house.  We put nothing down (although we thankfully were smart enough to not agree to an adjustable rate ARM, even then) and had to take out an extra $5K to cover closing costs and immediate repairs we wanted to do.  Originally our mortgage was for $123K and we have paid it down to roughly 116K in the 4 years we've lived there.  Fortunately our house is very close to the local university as well as a very popular area of town, so homes tend to the turn over quickly.  We estimate that with the upgrades we've completed (Brand new main bathroom, updated kitchen, original re-finished hardwood floors) we could conservatively sell the house for $130-$135 today.
 
We currently have a car payment on one of our cars, but will pay in off in about a year.  Our other vehicle is 12 years old, paid for and in good condition.  Our bills (including mortgage and car payment) account for about 65% of our take home pay.  We are currently paying too much for cable (a must to keep my sanity) and internet (a must for both of our jobs), but we are currently research competitor companies that we can switch to.  Our electric varies greatly due to our older home (they didn't believe in insullation in 1920) so that could range from $87 to $350 a month depending on the weather.  Childcare costs us roughly $520 a month.  We also tithe 10% and save 10%.  The remaining (what little there is) is used for discretionary spending. 
 
We recently paid off all our credit cards (using some money from savings) to eliminate those payments but still have my husband's graduate school loans to pay off - approximately $10K at this point. 
 
Our savings is not ideal, but we're working on building it up.  We currently have a little over $5k in liquid saving.  Combined we have close to $13K in 401K.  My husband contributes 6% and receives a max match of 6% at his company.  I have not been able to contribute to my 401K in the last 6 months due to my recent job change.  At my new company, when I'm eligible, I will contribute 6% as well, but they only match a max of 5%. 

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

We have recently overcome all our credit card debt, but realize we're really behind on savings. We struggle with finding the right balance between aggressively paying off debt while sacrificing savings (my husbands idea) or continuing to save while paying off the big debts (student loans, car, and home) at little at time (my plan).
 
Also, we both work really hard and pre-kid had the mind set of rewarding that hard work.  Basically if we saw something we wanted we bought it.  Unfortunately that state mind netted me a closet full of really expensive shoes and purses, but little else to show.  Now we are working to build a better financial future but sometimes feel like we're working for the future and not really enjoying some of the "fruits of our labor" now.  So finding that balance is also a struggle.

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

We plan on having another child in the next 2 years, but recognize that we to free up additional cash each month to cover the added daycare expense as well as the general expenses that come with a baby. With that, we would also like to purchase a larger home in a better school district.  Our current home is very cramped (as traditional 1920's bungalows are) and doesn't really work for our expanding family as there is very little open space besides our son's room.  We are also next to a very busy road, behind a restaurant and under the airports flight path, which creates a less than ideal outdoor situation.
 
As far as careers go, we both are interested in continuing to advance.  My husband would like to climb the ladder, but is still struggling to figure out which industry and type of role he's interested in (operations vs sales/client services).  For myself, I have big aspirations of becoming a CEO (thus why I'm now being mentored by my current CEO).  We both would like to be in a situation where we could retire from full-time corporate work in our 50's.  We both would then like to continue working part time in consulting or teaching for a few years before completely retiring. 

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

"Pay God and yourself first"  It's a hard one to do but worth while if you can establish routine.  For years, we never tithed and always would plan on putting whatever was left at the end of the month into savings.  Shockingly, by the enough of the month there was nothing there to save.  I set up an automatic transfer from my checking to my savings each month, and never have to think about it.  This is the ONLY reason why at this point we have anything in savings.  As for tithing, we finally reached the point where we felt convicted to do so.  I will be the first to admit that each month writing that check hurts because I can always think of ways that it would benefit us (like additional savings, paying debts, etc.)  However, in the time we've been faithfully tithing, we've not missed the money and are finding that when we need something, there always seems to be money for it, even if it's something fun like dinner out.  Our belief is that we've been so blessed, it's our duty to share some of our wealth to help out others.

Wise Bread Highlights $5k Red Kettle Challenge

Just wanted to point FMF readers to Wise Bread's GREAT write up of my $5k Red Kettle Challenge. They have done an outstanding job of covering the event.

The people over at Wise Bread are great. I met several of them earlier this year and know others via email -- and they are all super nice. If you get the chance, pop over there and tell them thanks for helping to help others.

By the way, we're just under $3,700 in donations for my Red Kettle challenge. And we're the #4 highest-earning kettle in the country!!!! Way to go FMF readers!!!!

If you'd like to donate, there's still time. Go here and give whatever you can.  Any amount is appreciated!!!

Save Money on Food by Buying at a Grocery Store Instead of a Drugstore

Money Watch lists items not to buy at a drugstore (saying they should instead get them at a grocery store.) Why? Because there's a HUGE price difference. The details:

ConsumerWorld.org, a consumer education web site, just conducted a pricing survey in the Boston area, tracking 25 common grocery items — both foods and household products. It found the average drugstore charged 50% more than the least expensive supermarket: $102.94 vs. $68.55 for the basket of goods studied.

Stores in the survey included: Walgreens, Rite Aid, CVS, Stop & Shop, Shaw’s and Market Basket.

Among the drugstore chains, Rite Aid proved the priciest, with the 25 items adding up to $107.96; CVS was the least expensive, at $98.12.  Meantime, among the supermarkets, the receipt from Shaw’s had the biggest total at $83.56, while Market Basket had the lowest at $68.55.

Here's my take on this:

1. We don't shop at drugstores for food items except in the following situations:

• They have a sale on/coupon for an item that we know is a good price even for a grocery store (examples: milk and Blue Diamond Almonds).


• Movie-box-sized candy (they are 25 cents cheaper than the grocery store every day.)


• There are some sort of rewards related to the purchase that make it an overall better deal than if it was bought at a grocery store (though with my 6% cash back Amex card, this one doesn't occur much.)

2. We rarely even go to Rite Aid or CVS. The Rite Aid near us is on the wrong side of the street for easy access (coming home) and there isn't a CVS that's convenient.

3. We are in Walgreen's quite often, but it's mostly as a pre-movie stop (candy).

4. We haven't gotten into the rewards game at any drugstores, but from looking at it from the sidelines it appears that you can get some decent deals if you do. Anyone willing to share their tips for saving with a rewards program from any of the drugstores?

Overall, I think there's a reason one is called a drugstore and the other is a grocery store. It's "generally" better (less expensive) to get drugs (in the broad sense) at the drugstore and food at the grocery store.

Happy Birthday to the Millionaire Next Door! I and My Net Worth Thank You!!!

Dr. Thomas Stanley recently announced that this fall is the 15th anniversary of the publication of The Millionaire Next Door. I got one of the first copies, read it (a couple times), loved it, and applied it to my life. Since then, my net worth has skyrocketed and I've benefitted tremendously by the findings/advice. So thank you, Dr. Stanley. You made a HUGE difference in my financial life.

Furthermore, if you've benefitted from reading Free Money Finance at all, you also have the book to thank. Much of my thinking and what I do financially comes from it.

For those of you who do not know, the heart of the book is the seven common denominators among those who successfully build wealth. They are:

1. They live well below their means.

2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.

3. They believe that financial independence is more important than displaying high social status.

4. Their parents did not provide economic outpatient care.

5. Their adult children are economically self-sufficient.

6. They are proficient in targeting market opportunities.

7. They chose the right occupation.

Let me summarize some of these and how they have impacted my life and writing:

• Millionaires work to make their gap as large as possible. I have done this as well.


• It's noteworthy that he lists living below your means as #1 and I have named it my best piece of financial advice.


• I have taken steps that are conducive to building wealth. In particular, I save as much as I can for as long as I can. And I invest it in index funds.


• I don't remember a huge emphasis on making a high income in the book. In fact, that was much of his point -- that you can become wealthy without having a high income. I certainly believe this is true, but I lean more towards having my cake and eating it too. Why not have a high income AND control your spending? That way you can really super-charge your savings/investing, which will drive your net worth to great heights. Oh, and it will allow you plenty left over to give as well.

Anyway, of any single book that's helped me financially, this is it. That's why it's #1 on my list of the best personal finance books. So again I say thank you to Dr. Stanley!

Any of you been influenced by this book? Or perhaps there's another that's done a lot for you financially? What is it?

Any Readers Want to Tell Your Story?

The Reader Profiles series has been pretty popular around here. So far we've done 39 posts and, while we still have a few in the hopper, I wanted to let you all know that I NEED MORE of them to keep the series going.

So if you're a reader and are willing to answer five simple questions (it's all anonymous), then drop me a line and I'll give you the details.

Thanks!

Update on How I'm Using My 6% Cash Back Card

It's been a couple of months since I posted my new credit card strategy. In that article I noted how I was buying gift cards at my grocery store and earning 6% cash back on my American Express Blue Cash Preferred card. Now that I have some more time under my belt, I thought I'd share a few of the ways I'm getting 6% cash back on more than groceries.

Before I get to the actual details, let me say that this strategy does take some advanced planning. For instance, I have to know that I need a gift card a week or so before I am actually going to use it. That way I can pick it up at the grocery store prior to the time I'll spend it. That said, let's now get to how I've used the card on non-grocery purchases.

After the credit card strategy post, I listed the wide array of gift cards that my grocery store carries. Here are the ones we've used in the past two months:

• Panera Bread - My wife loves Panera so when just the two of us go out, we usually go here.


• Subway - My daughter's favorite place. We go here whenever it's her choice of where to eat.


• Chilis - A convenient location for me to meet people from the north part of our city for lunch.


• Meijer - My wife gets 6% cash back on gas all the time.


• Best Buy - Unfortunately I used this card but had to risk ID theft to do it.


• Claire's - For my daughter. Do all teenage girls shop at this store?


• Lowe's - They had a shelf set we had previously purchased and we decided to get another one.


• Nike Store - I actually COULD have used a gift card here, but didn't. We go to an outlet mall an hour and a half from our house a couple times a year (when we're driving by for another reason -- like going to Detroit). Sometimes I buy some Nike stuff and sometimes I don't. I recently did, but I didn't get a card in advance because I didn't want to hold on to it for a long time if I didn't make any purchases. (FYI, I did get 2% cash back using another card.)

Those are the places I've used gift cards so far. Now here's a list of places we'll likely add to the group soon (especially since the holidays are approaching):

• iTunes - We have three iPods in our house.


• Playstation Network - I want to download a few things but don't trust my credit card number in their system since they were recently hacked.


• Bed, Bath and Beyond - Great place to get home stuff (if you have a coupon, which we always do).


• Michael's - For when my wife and daughter want to be crafty.


• Jo-Ann Fabrics - For when my wife and daughter want to be crafty.

So, that's how I've been using gift cards lately to get 6% cash back. Any of you doing the same?

Focus on Net Worth Over Income

Dr. Thomas Stanley tells us that those who have become wealthy do so in part because they focus on net worth over income. His thoughts:

Attitude is the greatest difference between millionaires and the rest of us.  I've also learned that the rich follow certain rules.

Rule #2:  Emphasize net worth; de-emphasize income.  Most millionaires measure success by net worth, not income.  Instead of taking their money home, they plow as much as they can into their businesses, stock portfolios and other assets.  Why?  Because the government doesn't tax wealth; it taxes income.  And the more income you bring home for consumption, the more the government takes.

A few thoughts here:

• We've covered numerous articles where the writer (usually a mainstream media-type) talks about the "wealthy" and then goes on to define them by how much they MAKE -- not how much they HAVE/KEEP. I think most FMF readers know that there's a big difference between the two.


• Yes, having a good income will help you grow your net worth and you should work to make your income as high as it can be IMO (that's why I write about it so often.) But your real wealth is what you keep, which means that in addition to earning a lot you need to control your expenses, so your gap is as large as possible.


• While having a good income will help you grow your net worth faster, you don't need a high income to amass a relatively high net worth. Here's one real-life example, but we've discussed many more throughout the years. If you want to see more, you'll need to go through my "spend less than you earn" category. It's a combination of people who make a lot and spend it all and those who make far less and yet grow their net worths.


• We've covered the fact previously that having a high income often doesn't lead to a high net worth. Main reason: those who make a lot tend to spend a lot. If you make $1 million a year and spend $1.1 million, you're going backwards financially.


• From day #1 FMF has been about "growing your net worth." Notice how it's my tagline, just under the logo on the top of the page. ;-)

Dr. Stanley also shares this comment -- which we've also covered previously -- but that I always find interesting:

The typical millionaire next door has a total annual realized income that is only about 8% [median] of his total net worth; the average is less than 7%.  This is a rather consistent finding across all the nationwide surveys that I have conducted except for those in The Millionaire Mind.  Actually these people are living on significantly less than 8% of their wealth because they save over 15% of their income.

Here's where I stand on these measures:

• My annual income is 12% of my current net worth.


• I save way more than 15% of my income each year.

How about you? Where do you stand on these measures?

Finding the Life Insurance That Is Best for You

The following is an excerpt from The Questions and Answers on Life Insurance Workbook: A Step-by-Step Guide to Simple Answers for Your Complex Questions. Since this is a workbook (meant for you to fill in sections of it), you can't get the full meaning/impact in a basic blog post. But I think you'll get most of the key ideas.

Take a breath. Thinking about death is serious, exhausting business. And subjecting your financial situation to an X-ray isn’t always fun. But you did it—and for good measure. When it comes to life insurance your needs come first.

Now the bad news: More than 1,500 life insurance companies are active in the business, and each usually offers several different types of insurance products. That means there’s a bewildering array of options at your fingertips. It can be overwhelming.

But here’s the good news: Despite the seeming complexity, there are major similarities between certain types of life insurance contracts: term insurance typically works the same from company to company, and so do different types of permanent or cash value policies. However, the devil is in the fine print/details. And here’s the bottom line: all life insurance policies promise to pay an agreed-upon sum of money should you die while your policy is in-force (that is, while you’re paying your premiums on time and while you’re still operating within the terms of your contract). That’s essentially what life insurance is all about.

Here’s the biggest difference between the two major families of life insurance: One family provides coverage only for a specified amount of time; this is known as term life coverage. The other provides permanent coverage until you die (this can now go up to age 120+ on newer policies; older policies may or may not have extended maturity dates/maximum ages) and often accumulates a cash value over time.

Term life coverage means that the face value of your policy will be paid to your beneficiary if you die within the term period and not afterward—unless the term policy is renewed upon its expiration, which almost always means higher premiums. These policies do not build cash value. Most term policies include an option to exchange or convert the policy to a permanent policy without evidence of insurability.

Permanent coverage essentially means that whether you die 5 years from now or fifty, the net death benefit of your policy will be paid to your beneficiary. Permanent coverage has the potential to build cash value, which means that, generally, the premiums you pay (1) grow with interest; (2) can, in some cases, be borrowed against; and (3) on indexed and variable policies, can be placed within investment accounts.

As you’d expect, each of these families of life insurance has a wide set of variations and options. So the first question becomes: Which family is right for you? That’s what we’re here to find out.

1. Reviewing your needs

Since the decision between term and permanent life insurance relies primarily on your own needs and circumstances, revisit those needs now. Looking back at exercise 1 in step 1 answer this question: Were the majority of your checkmarks (your motivations for purchasing life insurance) next to numbers 1 through 5 or next to numbers 6 through 11?

• Motivations fell within numbers 1 through 5: It is likely that term life is the better fit for you. In fact, term life is the best fit for the vast majority of people.


• Motivations fell within numbers 6 through 11: It is possible that a permanent policy may be the right fit for you. However, you’ll need to do some deeper exploration into your preferences and needs to be sure.

2. Examining your preferences, concerns, and long-term financial health

Now, before we begin matching your needs to different life insurance options, let’s take a look at your general preferences. Answer the following to the best of your ability (do you agree or disagree):

• I am actively saving or accumulating assets to cover the costs of college, retirement, emergencies (a rainy day fund of 6 to 9 months of income), and other long-term financial needs.


• My debts are under control and I expect them to remain so or to continue to lessen over time.


• I view life insurance as a form of emergency planning, and I expect that one day I will no longer need it.


• I am concerned about the cost of life insurance coverage in the short term.

If you agreed with the majority of these statements, term life insurance is the appropriate path for you. The fact is that most people have a finite, short(ish)-term need for life insurance, and they are interested in getting the maximum life insurance possible for the lowest cost possible (term life is substantially less expensive than permanent life when you are younger). They need to provide an emergency fund for young dependents in the case of their untimely death. And over time, their financial obligations (debts) lessen and their assets, such as retirement and college savings, increase. As this happens, their need for life insurance decreases (their dependents would have access to those assets in the case of their death).

However, if you disagreed with the majority of these statements, some form of permanent life insurance may be appropriate for you. If you believe it is important that you have coverage for the full span of your life, that you will always have a need for the security of life insurance for your family, regardless of the age of your dependents or how your other assets may grow, you should carefully investigate your permanent life insurance options.

Everything else being equal, the main reasons to purchase permanent insurance are: (1) if you have a dependent, such as a special-needs child or handicapped loved one, who relies almost solely on your income to live and who will need to rely on it after your death in perpetuity, or (2) if you have few, if any, other assets and don’t actively plan on having any that could be used to cover the cost of your funeral, to pay off any outstanding debts, or to provide some inheritance to your family.

But I think it’s safe to assume that you’re the type of person who takes an active interest in financial planning. Otherwise you wouldn’t have purchased this workbook, right? And for that type of person, term insurance—and paying cheaper premiums while investing the difference elsewhere—will most likely fulfill all your needs. If you would like to consider your options further, I urge you to consult Question 6 in Questions and Answers on Life Insurance.

To review the overarching pros and cons of purchasing term or permanent insurance, I’ve created the tables that follow. (But remember to look at each type of policy to understand its unique advantages and disadvantages.) This graphic comparison is pretty simple to understand; a qualified insurance agent (more on those in step 5) can help you make still more sense of the details.

Term Life Insurance Pros

• Premiums are lower than for permanent insurance. If you’re young, that means you can buy more coverage when the need for protection is usually greatest.


• It insures specific needs that will disappear in time, such as mortgages or loans.


• It usually provides the largest amount of death protection for your premium dollars.


• Most policies are guaranteed renewable for one or more additional terms, even if your health has changed.


• Many term insurance policies can be exchanged for or converted to a permanent policy during the term period. This conversion privilege could prove to be very important, especially if your health deteriorates and you are unable to qualify for a new permanent policy. Be sure to check the conversion eligibility period as you review the coverage before applying for a policy.   

Term Life Insurance Cons

• The older you get, the higher your premiums go. This is also true of level term coverage: at renewal time, the premium goes up and remains level for the next term.


• Coverage ceases when the term ends. Even when the policy may be renewed for another term, the ever-increasing premium may make coverage prohibitively expensive. Be sure to check the premium schedule at the specified renewal ages, and find out for how long the policy can be renewed.


• Generally, term policies don’t offer cash value or a reduced paid-up insurance option.


• According to a 1993 Penn State University study covering more than 20,000 policies, only 1 percent of the policies resulted in a death claim. But that’s not a con if your perspective on life insurance is to protect that 1 percent chance.

Permanent Life Insurance Pros

• As long as the necessary premiums are paid, protection can be guaranteed for life.


• Premium payments can be fixed or flexible to meet personal financial needs.


• The policy can accumulate a cash value that can typically be borrowed against.


• The policy’s cash value may be surrendered partially or wholly for the cash value, or it may be converted to an annuity. (An annuity is an insurance product that provides an income for a person’s lifetime or for a specific period of time.)


• A “rider” (additional feature) can be added to a policy, giving you the option to purchase additional insurance without taking a medical exam or having to furnish evidence of insurability.


• It pre-funds rising high insurance costs.

Permanent Life Insurance Cons

• Higher premium payments, compared to term life insurance, may make it hard to buy enough protection.


• It may be more costly than term insurance if you don’t keep it long enough. Premiums are higher than term in the early years of the contract. Policies typically have a high surrender charge in the first few years.


• Policy loans must be paid back with interest or else the beneficiary will receive a reduced death benefit. In rough times especially, policy loans can initiate a race to keep enough cash in the bucket and endanger the policy of lapsing.


• The cash value accumulates on a tax-deferred basis in most cases, but this is based on current tax law, which could change.

If you’ve determined by now that you want term insurance, continue to the next section (“Choosing a term life insurance policy”), where I will break down the options for term policies. If you want permanent coverage, however, skip to section 4 (“Choosing a permanent life insurance policy”) further on.

The Best of Money Carnival

The Best of Money Carnival is now up. Congrats to all participants and especially the winning post, Living Well on Less Than $10,000 a Year: Habits of Skilled Visa Workers.

Enjoy!

Help a Reader: What to Do with Extra Money

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

I am 27, male, single, unattached, and I graduated with my law degree (JD) from a public T-50 school in May 2010.  I currently work in-house for an insurance company out west.  At this point in my life, I'm unsure of what would be the best return on my investment with the $1,600 I have in monthly disposable income.

Financial Facts

Currently, I make 65k a year plus 15% year end bonus + 6% 401k match.

I started this job a few months ago and I moved back in with the parents to allow me to save some money and get back on my feet (I was laid off at my old job shortly before starting my current job).

Since that time, I have paid off my student loans and I am currently debt free.

My financial snapshot looks as follows:

• 401k - 12k (old employer - Wells Fargo 2050 fund) (should I roll this over to an IRA?)
• IRA   -  12k (FSTMX)
• Cash:  - 5k (earning 2% in rewards checking)

My outstanding monthly expenses are quite minimal.  Yes, I know my entertainment expenses can be high, but being young and single, I like to enjoy life a little bit.  I don't have a "vehicle maintenance" category since I only drive a company car (personal mileage counts as taxable income, but I still come out way ahead considering gas, maintenance, etc).

• Giving - $600
• Saving IRA - $416.66
• Entertainment - $300
• Miscellaneous - $200

Currently I bring home $3,274.94/month.  I take home the amount I do because of taxes, health insurance, 10% 401k contribution, vehicle insurance.  Basically, I can save one pay check and put the other into savings.

Current Financial Dilemma

I honestly don't know what do to right now.  How should I utilize my second paycheck?  Invest it in the stock market?  Buy a house?  Currently, my plan is to save about 10k in cash.  My parents are very content with me living with them (it was their suggestion that I do so), but it's not my desire to live with them indefinitely (even though they wouldn't mind). 

I'm tempted to buy a house, but I'm not too thrilled of tying myself down into one location.  I like where I am living (city, not with parents),  and will probably live here indefinitely, but life can take odd twists and turns and I don't want to limit myself; I like to travel.  At the same time, housing prices are down so much, I don't want to seem like a fool for not jumping in at this time or the near future. 

My other option is to take $1,100/month and put it into my 401k.  With the company match, I will have it fully funded every year.

As far as my career is concerned, I am open.  Right now, I plan on staying here for at least a few years to get some stability and experience under my belt; I can make a jump into private practice or another area from there.

Any help or advice would be greatly appreciated.

What's your advice for him?

Wealth Building from the Old Testament

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

Dr. Thomas Stanley (author of The Millionaire Next Door) offers us this wealth-building tip from the Old Testament (he quotes a small business owner who is a millionaire next door):

He often recalled a lesson he learned from the Old Testament: something about 7 bad years and 7 good years. . . .  Be sure to store your grain when grain is plentiful.  In other words, build wealth when demand for one's product is high.

The story he references here is the one told in Genesis 41. Pharaoh has two dreams, asks his magicians and wise men to interpret them, no one can, then one remembers Joseph has the gift of interpreting dreams. They pluck Joseph out of jail (he was there because he was accused falsely) and he tells them what the dreams mean as follows (Genesis 41:25-36, NIV):

Then Joseph said to Pharaoh, “The dreams of Pharaoh are one and the same. God has revealed to Pharaoh what he is about to do. The seven good cows are seven years, and the seven good heads of grain are seven years; it is one and the same dream. The seven lean, ugly cows that came up afterward are seven years, and so are the seven worthless heads of grain scorched by the east wind: They are seven years of famine.

“It is just as I said to Pharaoh: God has shown Pharaoh what he is about to do. Seven years of great abundance are coming throughout the land of Egypt, but seven years of famine will follow them. Then all the abundance in Egypt will be forgotten, and the famine will ravage the land. The abundance in the land will not be remembered, because the famine that follows it will be so severe. The reason the dream was given to Pharaoh in two forms is that the matter has been firmly decided by God, and God will do it soon.

 “And now let Pharaoh look for a discerning and wise man and put him in charge of the land of Egypt. Let Pharaoh appoint commissioners over the land to take a fifth of the harvest of Egypt during the seven years of abundance. They should collect all the food of these good years that are coming and store up the grain under the authority of Pharaoh, to be kept in the cities for food. This food should be held in reserve for the country, to be used during the seven years of famine that will come upon Egypt, so that the country may not be ruined by the famine.”

Anyone want to guess who the "discerning and wise man" is that Pharaoh puts in charge of the whole land? The story continues with Genesis 41:37-44 (NIV):

The plan seemed good to Pharaoh and to all his officials. So Pharaoh asked them, “Can we find anyone like this man, one in whom is the spirit of God?”

Then Pharaoh said to Joseph, “Since God has made all this known to you, there is no one so discerning and wise as you. You shall be in charge of my palace, and all my people are to submit to your orders. Only with respect to the throne will I be greater than you.”

So Pharaoh said to Joseph, “I hereby put you in charge of the whole land of Egypt.” Then Pharaoh took his signet ring from his finger and put it on Joseph’s finger. He dressed him in robes of fine linen and put a gold chain around his neck. He had him ride in a chariot as his second-in-command, and people shouted before him, “Make way!” Thus he put him in charge of the whole land of Egypt.

Then Pharaoh said to Joseph, “I am Pharaoh, but without your word no one will lift hand or foot in all Egypt.”

This is one of my favorite sections in the Bible. Joseph has gone from a shepherd who was thrown into a well and then sold as a slave by his brothers through a series of events that landed him in jail in Egypt. And in one day he goes from the lowest of the low to the highest of the high. It's a wonderful story of redemption.

As far as personal finances go, it's also a story emphasizing the reason we all need emergency funds and extra savings. Things aren't always going to be as bright as they are today (we've all learned that over the past few years, huh?) There are times extra expenses pop up, times when someone can't work, times when an illness strikes. That's why we need to save now -- for the seven years of famine.

Only let's hope that they last for just a bit. SEVEN YEARS seems pretty severe! ;-)

Help a Reader: Vacationing in Italy

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

I am going on vacation with my husband to Italy.  I have a few questions I thought your readers could be helpful with.

1. What is best way to exchange money abroad?  My credit card(chase freedom), has a foreign fee they tag on to using abroad, so i would like to save that for emergency only. My debit card has no fees, but has a daily limit.  I could exchange at my local airport before we go, but I'm not confident they have the best rate.  Will my method of exchange (cash or debit card) bring me better or worse rates? Any other ideas?  I would love to get the most out of my money.

2. Should I be worried about the recent financial situation of italy being a tourist there?  And do you think the recent problems will bring the euro exchange rate down enough that I should wait as long as I can to exchange money?

What's your advice for her?