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12 Keys To Making Better Decisions About Your Personal Finances

man fanning money near his earDid your parents teach you to be a smart money manager? If so, consider yourself lucky. Most parents will talk to their kids about the birds and the bees but not about budgets and CDs. They must assume we’ll pick it up on our own, which is how most of us learn about personal finance. The Irish writer and poet Oscar Wilde once said, “Experience is simply the name we give our mistakes.” Unfortunately this is how many of us learn to be better money managers. We make mistakes like maxing out our credit cards, learn the consequences and become smarter about money.
Keys to making better decisions

If you’d rather not learn how to make good financial decisions by making bad ones and learning from them, there are some keys to making better financial
decisions …

Be brutally honest with yourself

If you’re not careful you can fool yourself into making some really bad financial decisions. For example, you could decide to borrow from your 401(k) because, heck, you would be paying interest to yourself. Or you might buy furniture you don’t really need because of the lure of zero interest financing. These are the kind of decisions where you could be deceiving yourself into financial problems. Be brutally honest with yourself about all of your decisions and the motivations behind them. Do you really need to borrow from your 401(k) to buy that new car or could you just save money for a year or 18 months and then pay cash? And while 0% interest can be a good deal in some cases you shouldn’t use it as an excuse to buy something you don’t really need. A good rule of thumb is that when in doubt, get a second opinion from a family member or friend that you know is good with his or her money. As George S. Clason once wrote, “It costs nothing to ask wise advice from a good friend.”

Watch out for fees

There are almost always fees attached to things that have to do with finances – credit cards, banking, investments and other financial products. It’s absolutely critical to keep fees low especially when it comes to investing. Making money in the stockmarket is tough enough by itself without paying fees that wipe out your gains.

Use cash not credit

Whatever you do, don’t finance your lifestyle on credit. Credit card debt can just ruin your life. Pay cash for everything from groceries to vacations to cars. If you need to make sacrifices to pay cash, do it. Using credit to buy things is the equivalent of stealing money from yourself in the future. Every cent you borrow must be paid back and often at very high interest rates. As the Persian poet Omar Khayyam wrote, “Take the cash and let the credit go. Nor heed the rumble of a distant drum.”

Save a dime out of every dollar

This is very simple but very powerful. Make a habit beginning right now to save at least 10% of your gross pay. Save 20% or even more if possible. If you don’t doubt what this can mean to your lifer, read the book The Richest Man In Babylon by George S. Clason.

Think long-term

Ours has turned into a “get rich quick” society. But if you really want to build lasting wealth, you need to think long term as you make your financial decisions. This puts everything into perspective from a $4 latte at Starbucks to how much you should invest in your 401(k). As an example of this, if you think long term you would realize that a daily $4 latte eventually adds up to $21,056 over 10 years. And investing $1000 a month beginning at age 25 (instead of age 35) generates $1.7 million more by age 65.

Learn to live with uncertainty

While you may think you should avoid uncertainty like the plague when making financial decisions, the problem is that it costs a lot to avoid it. For example, the insurance industry thrives on uncertainty when it comes to cash value life insurance and annuities. However, some protection against uncertainty is unavoidable such as term life insurance and auto insurance. Be sure to think twice before spending a lot of money in return for guarantees.

For example, this concept can be especially important if you are evaluating an annuity. Annuities can be part of some financial plans but there are always fees associated with these products and they tend to limit the upside. An annuity will generate a constant stream of payments but at a high cost. The key here is to think carefully before spending a lot of money to avoid uncertainty. There are rewards to learning to live with it.

Keep things simple

There is an old rule of thumb that the more complex is a “solution,” the less likely it is to be your best option. For example, in most cases term life insurance is a better investment than complicated permanent life insurance products. And index funds are generally better than more complicated actively managed funds. One simple way to invest is in funds or ETF’s as this is usually better than complicated insurance products that have an investment component. In other words, all things being equal, simple is most often better.

stack of moneyHarness the power of compounding

It’s important to harness the power of compounding. Once you understand it, you can better evaluate your financial decisions to make sure they take advantage of it and not ignore it. If you’re not familiar with compounding this is where you earn interest on your investment and then interest on that interest. For example, if you started with $100 and added $100 a month at 2% interest, you would have $1,313.08 at the end of year one and then $2,550.64 at the end of year two and not just $2500.

Always consider the power of compounding whether it comes to paying off debt or how you need to be investing today.

Do the critical things first

Don’t put off the big financial decisions. Begin every day thinking about those things you need to accomplish and get to the important stuff first. Don’t put off actions such as preparing a will, investing for retirement or buying life insurance. When you do the critical things first, everything else will just be much easier.

Take responsibility for your actions

Despite what the politicians might want you to believe, you are not a victim. These people may tell you that the problem is corporate America or that the system is rigged but the result are the same – it makes us feel helpless. This is all nonsense that’s created to score political points rather than moving the country forward. Never play the victim.

Learn to think outside the box

Do you tend to view financial decisions in black and white? For example, do you believe that your emergency fund should always be in cash in a bank or that you should pay off all your non-mortgage debt before investing? These approaches to personal finance often turn out not to be in your best interest. Don’t make a financial decision without weighing the pros and cons and considering all alternate options.

Don’t be greedy

Your friend has a great stock tip that’s absolutely guaranteed to make you money. But you also worry that this might be too good to be true. When this is the case, it usually is. Whenever you’re faced with one of these deals you need to monitor your own emotions. You may be tempted by a get rich quick mentality. But think twice before acting as these deals often do turn out well.

11 Financial Things You Should Have Done Before Turning 30

woman smilingIf you’re close to or about to turn 30, this is a fairly significant milestone. Your youth is behind you and you are now definitely an adult. With adulthood comes some great responsibilities and number one on your list should be to take charge of your finances. We understand this doesn’t sound like much fun and that personal finance can sound like a very dry topic. But it cannot be denied that financial things play a huge part in our lives, that money is always one of the top stressors and that it can cause the biggest discord among couples. In fact, every report we’ve seen ranks finances as the second biggest reason for divorce – right behind communication or lack thereof. We hope that you already have your personal finances at least somewhat under control. You should have a reasonably good idea as to where your money’s going and how your spending stacks up against your earnings. Beyond this, here are 11 goals you should have achieved by now. These goals are, of course, not for everyone and some of them may not be feasible for you. However you should keep these in mind as general guidelines. And if you haven’t yet achieved them, it might be time to sit down and write out a plan for accomplishing them.

You should have saved up for the big expenditures of life

You should be thinking about, anticipating and saving up for the big expenses of life. You will need to factor in your wedding, children, a pet, a house and other similar big ticket items. If you plan for these events, you’ll be adjusting your lifestyle, you will be able to afford those expenses and you will not have to go into debt to pay for these items. You should probably try to budget a realistic amount to cover these expenses so you don’t have to go into debt. Of course, another good idea is to forgo some of these expenses and question if they really are necessities.

You should be living within your means

By now, you should know about living within your means and also enjoying life. You should be able to put priorities on your spending and then save in other areas so you can enjoy those “guilty pleasures”. Even if that pleasure is just a daily latte, you should be able to indulge yourself so long as you’re cutting your spending aggressively on other items. Also, be careful about comparing yourself to other people. What they skimp on may not be what you want to give up.

You should have emergency savings

We hope you already have an emergency fund. Most experts say this fund should be the equivalent of six month’s worth of your living expenses and some say it’s even better to have a year’s worth as a better buffer. Of course, it’s easy for those experts to say this. If you find that it’s extraordinarily difficult to save the equivalent of six month’s of living experiences, try for at least three. Life is full of unanticipated issues such as an automobile accident, a serious illness, a friend or family member who suddenly needs financial help or losing your job. If you don’t have an emergency savings fund your only alternative will be to go into or further into debt.

You should be maxing out your 401(k) contribution

If your employer offers a 401(k), you should max out your contribution or at the very least meet your employer’s match. A 401(k) is really the workingman’s best friend. The money is taken out of your salary before you even see it – making your donation practically painless. If your employer does match your contribution this is like free money. While the stock market probably won’t continue to grow the way it has the past several years you could still earn good money by choosing the right stocks or mutual funds for your 401(k). And if push comes to shove you could borrow from your 401(k), which means you would be borrowing from yourself and the interest you would pay you would be paying yourself. And that’s not a really bad deal.

You should be a master of automation

You should by now have learned how to master the art of automation. If you send a chunk of your salary automatically to your savings every month you would be paying yourself first. And when you save money, you can tap into the power of compounding interest. This is when you earn interest on your savings, which is added to your savings and you then earn interest on it. If you automatically save as little as $50 a month for 30 years you would end up a millionaire – thanks to the power of compounding interest.

You should have a Roth IRA

If you have a conventional IRA, good for you. That’s money that you save pretax, meaning it’s money you don’t have to pay taxes on. However, the downside to this is that you will have to pay taxes on the money when you begin withdrawing it. In comparison, with a Roth IRA you pay taxes on the money you deposit into the account but it’s then tax-free when you withdraw it.

You should have written a will

None of us wants to think about our “final destination” but there’s no way to avoid the fact that your life will ultimately come to an end. If you don’t have a will, you will die intestate. If this occurs, a person will be named as your executor and will decide what happens to your property. Under intestate succession laws only spouses, and registered partners (if you live in a state where that’s an option) and blood relatives can inherit. This means any friends, unmarried partners or charities would get nothing despite any intentions you might’ve had to the contrary. So, if you haven’t done this already, go to an attorney or a site such as LegalZoom and get a will prepared That way you will be able to control exactly where your money and your properties go.

You should be paying off your high interest debts

If you haven’t done this already you need to sit down and make a list of your debts in order from the one that has the highest interest rate down to the one with the lowest. Once you have your debts prioritized, you need to concentrate on paying off the one that has the highest interest rate. Of course, you will need to continue to making at least the minimum payments on your other debts. But when you pay off the one that has the highest interest rate, you automatically save the most money, which you can then use to begin paying off the debt with the second highest interest rate and so on.

You should have a decent credit score

If you’ve been handling your finances sensibly, which means keeping your credit card debts under control, you should by now have a fairly decent credit score – of 750 or above. Most lenders look at credit scores in ranges as follows.

  • Very good or excellent – between 700 and 850
  • Good credit score – between 680 and 699
  • Average credit score – between 620 and 679
  • Low credit score – between 580 and 619
  • Poor credit score – between 500 and 579
  • Bad credit score – between 300 and 499

If you haven’t seen your credit score recently, you can get it from for $19.95 or free if you sign up for a trial of the company’s Score Watch program. It’s also possible to get a version of your credit score at sites such as If you have a credit score lower than 680, you may have some work ahead of you to get it raised. The reason for this is because there’s an indirect ratio that exists between your credit score and how much interest you will be charged on a credit card or a loan. In other words, the higher your score the lower interest rate you will be charged.

You should have already read several good personal finance books

While some people like to think you can master personal finance instinctually, this is just not the case. If you really want to be on top of your personal finances you need to have by now read several books. If not, you need to get to work. You should probably start with Your Money or Your Life ($12) and Total Money Makeover ($18). Beyond these, the simple fact is that you just can’t read too many books about money management.

You should know how to negotiate

Finally, by now you should have had some practice negotiating – over your salary, with service providers and others. While there are areas where it’s simply impossible to negotiate – like at your neighborhood supermarket – there are also many other areas where you can save money if you know how to negotiate successfully. If not, here’s a video with some good information about the art of negotiating.

10 Signs That Your Financial Management Skills Suck!

man looking frustratedDo you want to know how to improve your finances? Well you and a millions of Americans are after the same goal. We all had our finances suffer when the Great Recession hit and it was devastating to watch everything that we have worked so hard to acquire go down the drain.

We all blamed debt for most of our financial suffering. We thought that if we did not have debts, none of us would have gone through so much stress the way we did. While this way of thinking is sound, you need to realize that it is incorrect. Despite the obvious destructive effects of debt, the obvious culprit in our suffering is our own financial management skills. Or at least, the lack of the right skills.

According to a study done by, the average income of Americans is $4,000 a month. Most of that goes to groceries, transportation, insurance, and housing expenses. Only 3% of the disposable income goes to savings and not even everyone can afford that. Low and mid income families usually cannot meet all the expenses so they are forced to pay for any deficit through their cards. The average is usually $58 a day. If you compute that, it amount to $1,740 a month – which is already 40% of the average income of Americans.

The way we spend our money, pay off deficit in our expenses and the little amount that we save is like a ticking time bomb. One glance and you know that there is something wrong with how we manage our money. It does not matter if you can earn more – if your financial management skill suck, then you will always be on the brink of a financial crisis.

10 reasons your money management skills will fail you

There are certain signs that will tell you if your money management skills is leading you to a disaster. You want to go through this list so you can be certain if you need to improve the way you manage your money.

Here are 10 reasons why your financial management skills put you in a compromising position.

  1. You do not have an emergency fund. Let us start with your financial security. One of the indications that you are financially secure is when you have enough money in your emergency fund. If not, then you know that you are in trouble. According to the latest Financial Security Index from, 26% of the respondents in their survey said that they do not have any emergency fund. 24% has less than 3 months covers, 17% has 3-5 months and 23% has an emergency fund that is worth 6 months and more. If you are not part of the 40% who has an emergency fund worth 3 months or more in expenses, then you need to save more to secure your finances.
  2. You fail to keep track where your money is spent. Another sign that your financial management skills are not ideal is when you do not know where your money is going. Some people blindly pay their bills and daily expenses without really checking if they are able to pay off the priority. Even if you do not end up with a deficit each month, you need to track where your money is being spent. That is how you ensure that it is funding the expenses that matter to you.
  3. You have no idea how much you owe. As scary as this may sound, there are people who have no idea how much debt they have. This is dangerous because in most cases, they realize too late that their debts have grown into an amount that they cannot afford to pay back. Do not let it reach this point and just start monitoring all your credit accounts.
  4. You have a problem differentiating a want from a need. An important skill that you need to learn in financial management, that is admittedly quite tricky, is to distinguish the want from the need. The problem is, we try to justify the wants as a need. But here’s the thing. We want a big house but all we really need is a safe and comfortable home. We want designer jeans and dresses but all we really need are decent clothes. Learn how to prefer the essentials.
  5. You cannot say no. We’ve written an article that discusses how saying no can save you from a financial crisis. There is so much truth to this that  you need to really learn how to say no. That means saying to to your friends, family and even yourself. Helping is good but make sure you are not giving them the easy way out. They have to learn from their mistakes and instead of giving them the quick relief, guide them as they go through the painful process of saying no. In the end, you are not only helping them, you are also protecting your finances from being compromised.
  6. Your expenses are bigger than your income. If your expenses are bigger than your income, then you know that your financial management skills need improvement. Try to lower your expenses by cutting back on those that are not necessary. Live within your means because any purchase in excess of your income is done through credit.
  7. You always spend using your credit cards. Now that we have mentioned credit, let us discuss credit cards. It is not bad to use them but you have to learn how to use them properly so you do not end up in debt. Make sure that when you use it, you have the cash on hand to allow you to pay for it in full at the end of the month.
  8. You only pay the minimum requirement. In connection with the last, if your credit card payments are only based on the minimum requirement, you should know that it is also a sign of bad financial management skills. This payment method will keep you in debt for a very long time. So pay more than the minimum and if you cannot do that, then stop using your credit cards for the meantime until you have paid off your balance.
  9. You compare what you have with others. Another bad habit that could lead to your financial disaster is always comparing what you have with others. Their life is not the same as yours. It may be true that you have the same position and earn the same amount of money but you financial obligations might be different. You see them sporting new cars but that may be because they already have investments in place to help them afford it. Just focus on what you need and not what your neighbors have.
  10. You are not paying attention to your credit report. Lastly, not checking on your credit report is a big mistake for a lot of people. Some have gone through life with no debt or have made wise financial decisions but since they failed to check their credit report, they did not see that they were victims of identity theft. Unknowingly, someone got your details and borrowed huge sums of money under your name. If you fail to spot that in time, you could end up paying for all of that yourself.

5 steps to improve how you manage your finances

If you are guilty of any of these signs, then it is a must that you work on your financial management skills. In case there is a need to improve your habits, here are 5 things that you can do.

  • Improve your financial literacy. First of all, you have to be able to identify the mistakes before you make them. This can only be done if you are aware of what is right and wrong. Improve your financial literacy by reading about personal finances. You can start by visiting – especially the part about managing your money.
  • Set up financial goals. Once you have educated yourself, set financial goals that will lead you towards a more prosperous financial standing. It can be as simple as growing your money up to $X amount or buying your own home.
  • Create a budget. When you have your goals, you can work on a budget that you will follow each month. This budget plan will not only help you practice financial management, it will also help you setup your finances so you can reach your financial goals.
  • Identify the habits that are sinking your finances. Obviously, you need to stop those bad spending habits in order for you to keep a tight lid on debt. Other habits that you may want to correct includes failing to check your credit report, not saving enough for retirement, etc.
  • Stop acquiring debt and pay off existing credit. Lastly, you want to make sure that any debt that you have will be paid off and you will also stop acquiring unnecessary debt. This will help maximize what limited resources you have each month.

Here is a video from HowCast that teaches how you can avoid credit card debt.

5 Important Tips For The Recently Graduated

woman holding a credit cardCongratulations! You’ve done it. You toughed your way through those four or five years of early morning classes, brain-numbing seminars and midnight study sessions and you’ve graduated. You have your diploma firmly in hand and are all set to move on to the next stage of your life. You may be looking forward to getting a new car, starting a job or even getting married. You’re about to be on your own, maybe for the first time in your life and you suddenly realize your personal finances are all up to you. You’ll definitely have financial challenges ahead of you and need to start thinking about your financial goals for the next 10 to 20 years.

Have you really sat down and thought about your finances and what you need to do in the next few months? If not, here are five simple steps you should be taking to get off on the right foot.

1. Make a budget

To be a good money manager you need to know where your money’s going and how to allocate it in the future. Having a budget is really the only way to control your spending and to make sure you spend less than you earn.

The first step in creating a budget is to determine your monthly expenses and income. Your income will be what you earn, plus any other forms of income such as interest earned, bonuses, commissions or Christmas money gifts from your parents or other relatives.

Next, you will need to calculate your spending. Since you recently graduated, you won’t have much of a history at this point so some of this may have to be pure guesswork. The important thing is to divide your spending into two categories – fixed and discretionary. Here are some typical fixed categories.

  • Rent or mortgage payment
  • Utilities
  • Transportation
  • Debt repayment
  • Family obligations

Your discretionary categories would include:

  • Food
  • Clothing
  • Health and medical
  • Entertainment/recreation
  • Pets
  • Investments and savings
  • Miscellaneous

You will next need to attach numbers to each of these categories. Since you don’t have much of a spending history at this point some of your numbers may have to be “guesstimates.” But that’s okay as you will learn more about your actual spending in the months ahead and can then adjust your numbers accordingly.

Once you’ve totaled up your spending you need to compare it with your income. If you find your spending adds up to more than your income you’ll need to make some adjustments. Since you can’t do much about your fixed expenses you will have to take a hard look at those discretionary categories to see where you could make cuts.

The important and hardest thing about budgeting is sticking to it. Here are some things you could do to make sure you stay on track.

  • Make budgeting an integral part of your daily life
  • Build in money for the occasional “splurge” or reward such as a night out with the boys or girls.
  • Monitor your spending regularly and make changes or adjustments as necessary

2. Make it a priority to save money

You need to be setting aside money whether it’s to create an emergency fund or put in an employer-sponsored savings plan. Because you’re young you have a powerful advantage over older generations, which is time. If you make saving money a priority now, your money will have years and years to grow and you’ll profit from compounding interest. Most people find that the easiest way to save money is to have it automatically taken out of their paychecks and deposited into a savings or investment account. This tends to reduce the “pain” of saving money because you should quickly learn to live on the “net” of your paycheck. Also, if you start saving money when you’re young it will become a habit that will stand you in good stead for all your life.

3.  Get a handle on your debt

If you’re typical, you graduated not with just a diploma but with a bunch of student debt. The average amount owed by this year’s college graduates is $29,400. While it’s likely that you don’t owe this much the odds are that you graduated owing on some student loans. If you know how much you owe and to who, good for you. If not, you should go to the National Student Loan Data System (NSLDS). It will have a record of all your federal student loans including, the amount borrowed, the loan provider or servicer, the date the money was distributed and how much you owe. The NSLDS even has a thing called a Loan Portfolio where you could store all the information about your loans. Once you have this information is in hand, you will need to make a plan for repaying your loans.

However, if you had private loans (from a bank or some other for-profit organization), they will not be in the NSLDS and you will have to chase down this information yourself.

Video thumbnail for youtube video Revealed – The 4 Greatest Myths Of Credit Scoring4. Learn why it’s important to have good credit

There is a simple fact about personal finances. It’s that the higher your credit score, the less it will cost you to borrow money. You can learn your credit rating by going to a site such as, or Your credit score is expressed as a three-digit number and the higher the number the better. Lenders usually make decisions about credit based on tiers as follows:

  • Between 700 and 850 – Very good or excellent credit score
  • Between 680 and 699 – Good credit score
  • Between 620 and 679 – Average or OK score
  • Between 580 and 619 – Low credit score
  • Between 500 and 579 – Poor credit score
  • Between 300 and 499 – Bad credit score

If you don’t believe your credit score makes a difference, here are the different interest rates you’d be charged on a mortgage – based on credit score.

760 to 850  5.780%           620-659   7.096%
700-759       6.002%          580-619    8.583%
660-699      6.286%           500-579    9.494%

As you can see from this table if you have a credit score in the low 600s you will pay a lot more in interest than if your score was in the high 700s.

You should also review your credit reports from the three credit reporting bureaus — Experian, Equifax and TransUnion. You can get your reports one at a time from the companies or all together at The reason why you want to get your reports is to review them as they could have errors that are damaging your credit score.

To keep your credit “good” you will need to keep tack of your loan balances and payment dates and develop a plan for paying off your debts. It’s also a good idea to pay off high interest debt first as this would save you the most money.

5. Protect yourself with insurance

Depending on your age you may still be on your parents’ health insurance. If not, you need to sign up for health insurance. Under the Affordable Care Act (often called Obamacare) everyone must have health insurance. If you don’t, you face the very real possibility of having to pay a penalty. If you don’t have health insurance through your parents or employer you will need to purchase a health plan from either a federal or state-based health insurance Exchange Marketplace.

There are some other types of insurance you also need. If you’re a renter, you should get renter’s insurance to protect against the loss of or damage to your personal property. And, of course, you need auto insurance. Your agent should be able to help you choose your coverage but the important part is to make sure you buy good liability insurance to protect you in the event you were to cause an accident where someone is seriously injured.

What Happens If You Just Ignore A Debt Collector?

man shouting at phoneIf you’ve ever had a debt turned over to a collector you already know how bad things can get. We’ve heard stories of people who were hounded multiple times a day – both at home and at work – had their relatives contacted and were dragged into court. Unscrupulous debt collectors can and will make a debtor’s life miserable until he or she finally gives in and pays up.

The dirty, little secrets of debt collection

Why will most debt collectors stop at nothing until they get your money? The first dirty little secret of debt collection is that most collectors are paid on commission. If they spend several hours hollering at you, threatening and harassing you without colleting anything they’ve basically worked free. What this means for the collector is that the bigger the bill the better. In many cases the agency will get a bounty of 10% to 50%, which is usually split with the collector. Top collectors can earn as much as $10,000 a month.
The second dirty, little secret of debt collection is that agencies generally buy debts for pennies on the dollar. In other words, the collection agency might have purchased your $1,000 debt for $20 or less. This gives the collector room to negotiate and still earn his or her commission. This means that in many cases, you could probably settle that $1000 debt for $500 or less.

You  can run but you can’t hide

Today’s technology has had two impacts on debt collection – one good, one not so good. First, if you have any kind of caller ID you can check your incoming calls and if it appears to be from a debt collector, just ignore it. That’s the good part. The bad part is that it’s almost impossible to run away from a debt collector – even by changing your phone number.

In the event you have a debt you feel you just can’t pay, you could stonewall the collector by ignoring all of his calls. Legally speaking, you do have the right to ignore a debt collector but it’s important to understand that this doesn’t make the debt go away.

A number of different scenarios

If you decide to ignore a debt collector, there are several different scenarios that can occur. First, the collector could just leave you alone. Maybe he simply can’t find you and has quit trying to track you down. While this could happen, it’s not something to count on.

Your credit will suffer

When you have a debt go to collection, your credit score will be seriously damaged. It will appear on your credit reports regardless of whether you try to work with the debt collector or not. However, if you do talk with the collector, you at least have the opportunity to explain what the problem is and to try to work something out.

The debt could grow

Just because you don’t pay on a debt doesn’t mean that the interest will go away. Depending on the contract that the collector has with the creditor and your state’s law, the agency may be able to add interest and collection costs to your debt. Some debtors have reported that their debt actually doubled over time.

You may be bounced from one agency to another

Just as lenders sell debts to collection agencies, the agencies sell debts to one another. If the first collector that contacts you is unsuccessful at collecting the debt, it could wind up at a different agency. And this could happen multiple until you give up and pay the debt.

People you know may be contacted

In the event that the debt collector tries to reach you and is unsuccessful, the law allows him to reach out to third parties such as your neighbors, relatives or your employer – but only to find you. The law doesn’t allow a collector to disclose the fact that you owe a debt or to discuss your finances with other people. However, it can still be very embarrassing if the person the collector called starts asking you pointed questions like, “why did this collection agency contact me?”

You could be sued

If you fail to communicate with a debt collector it may leave the agency with no option but to sue you. While it is possible to successfully defend a debt collection lawsuit, it’s very difficult. And if the agency is successful in court, it can get a judgment entered against you. This in turn would allow the collection agency to garnish your wages or even go after your bank account.

The stress will increase

Trying to dodge a debt collector can leave you feeling very stressed out. It can be scary or frustrating to talk with a debt collector but the alternative – which is not to talk to him – can be just as stressful. If you call the debt collector, this is the friendliest aspect of debt collection because at that point he will want to work with you to try to resolve the debt. The bottom line is that if you have an unresolved collection account, try to decide on your approach and then pick up the phone – or write a letter – so you can put the debt behind you. Also, because collection accounts have such a dramatic impact on your credit score, it’s a good idea to get your free annual credit report to see whether or not you have any outstanding collection accounts. You should also be sure to monitor your credit scores every month.

Tips for negotiating with creditors

If you take a call from a debt collector, he or she will have no interest in why it is that you can’t pay the bill. But if you’re in a hardship situation, the collector does need to know this and what it is you’re doing to get back on track. You should have a story ready and then stick to it. This could be just a few sentences that you can use consistently when you talk to a creditor. For example, “I was very ill, out of work for two months and now I am trying to get caught up.” Or “my husband was laid off and I’ve taken a significant cut in pay. He’s looking for a job so we can catch up but we don’t have any money right now.”

Don’t be a drama queen

You’ll get nowhere with a debt collector if you lose your temper. It’s important to stay calm and not lose your cool. If you find yourself losing your temper, just tell the collector you will need to talk with him later and then hang up. In the event that you have to talk with that collector again, tell him you would like to record the conversation. This usually keeps collectors on their best behavior.

Ask the right questions

If the collector threatens to sue you or that you’ll lose some property if you don’t pay up, ask for specifics: “When will I be notified of the lawsuit?” Or “When will the money be taken from my bank account?” Some of these threats may be a illegal and the more information you have the better.

Be sure to take notes

Whenever you talk with a collector, have a pen and paper handy so that you can take notes. Be sure to write down the name of the person you talk with, what was discussed and when you talked. This will not only take much of the emotion out of the deal but you will also have a record if the collector broke the law when attempting to collect from you.

Know exactly what you can afford to pay

Sit down with a notepad or spreadsheet and go over your expenses and income very carefully. Figure out exactly what you could afford to pay and agree to pay only a realistic amount. In general, if you can come up with a lump sum amount to resolve the debt, you’ll get the best settlement. If you can’t do that, you may have to agree to a payment plan. In this case, you’ll probably pay more over time. If you do agree to a payment plan, make sure you know the total amount you will be required to pay.

Deal with creditors and not collectors

What’s best is to try to work out an agreement with your creditor or creditors before your bill(s) is sent to collection. If you make late payments this will affect your credit score and credit reports, but collection accounts will do even greater damage. You should know that it’s a myth that so long as you are paying something towards a debt it can’t be turned over to a collection agency. Also, understand that once a debt is sent to collection, you have no choice but to deal with the collection agency.

Get it all in writing

If you do agree to a payment arrangement or settlement agreement, get everything in writing before you pay a cent. If not, the terms can change and it will be your word against that of the collection agency. There have been many cases where consumers were hounded for balances they thought they had resolved years before.

Finally, here is a video courtesy of National Debt Relief with some good tips for dealing with debt collectors.

To Rent or To Buy A House – That Is The Question

House and calculator and credit scoreYou’ve probably heard that old expression that “good things come in small packages.” That’s often true. It doesn’t take a very large package to hold a diamond engagement ring or a TAG Heuer watch. On the other hand, there are some very good things that come in very large packages and one of them is a house. But whether you’re single or married, there’s always the age-old question of whether it’s better to rent or to buy.

We favor buying because that’s basically the way we were raised. If you’re an American, the American dream has long been to own your own home. This desire really bloomed after World War II when our soldiers came home, got married and started having children. Builders such as Levitt began building houses (Levittown) that the average person could afford and that’s what many of our vets chose to do.

But as we learned from the mortgage meltdown of 2007 that left so many homeowners underwater, homeownership today is not the same as 40 or 50 years ago. The American dream may still be alive but before you plunk down $20,000, $25,000 or more to buy a house, it’s worth taking the time to determine whether that makes the most sense for you or whether you should be renting.

Price of the house

The price of the home that you would buy is not the only factor in making a rent versus buy decision but it’s a very important one. There is a simple formula that the more a house costs the bigger the down payment that will be required and the higher your monthly payments will be.

As an example of this a $250,000, 30-year mortgage will have a monthly payment of around $960 –not including taxes and insurance. Change that to a $300,000 mortgage and the monthly payment goes to approximately $1520. (Note: Both these examples are based on a mortgage at 4.5% APR.)

How long will you be there?

If you believe you will be living in the same place for five years or less, you’d probably be better off renting. The reason for this is because the longer you stay in the house the more years there will be for your upfront fees to be amortized – or spread out. As an example of this, suppose that your upfront fees totaled 3% (not including the down payment). If you were to stay in that house for five years your fees would amortize at the rate of $1500 a year (3% x $250,000). But if you were to stay there for 10 years, the fees would go down to $750 a year.

How much can you afford to put down?young family smiling

A 20% down mortgage means a $250,000 house would require a down payment of $50,000. If you were able to get a mortgage at 10% down, you would still be required to come up with $25,000 cash. As an alternative to this you might be able to pay mortgage insurance or get a government guaranteed loan. An FHA loan program has looser credit criteria than a conventional mortgage and requires only a 3.5% down payment. Plus, the seller pays most of the closing costs.

While this may sound pretty good there are some definite caveats. To qualify you would need to show two years of steady employment with a stable or increasing income, along with a minimum credit score of 620, no more than two 30-day late payments over the past two years, no foreclosures in the past three years, no bankruptcies in the past two years and your mortgage payment will need to be no more than about 30% of your gross pre-tax income. You will find that there may also be some limits on how much you can borrow based on where you live. And finally, you will be required to pay a premium of up to 1% of the loan amount at closing and a monthly premium of up to .9% of the loan amount each year.
If you’d like to know more about FHA guaranteed mortgages, here’s a short video with some good information – courtesy of National Debt Relief.


The costs of maintenance

One thing you never have to worry about when you rent is maintenance and repair costs. One person summed up this issue very succinctly by saying, “owning a home is like having a big hole in the ground that you keep shoveling money into but that never gets filled up.” Ask any homeowner and he or she will tell you that maintenance and repair costs simply never end. The minute after you’ve spent $1,000 to have your house repainted you learn that your entire roof needs to be replaced at a cost of $5000. As a general rule, you should have the equivalent of at least three to six months of your gross salary put away just to cover these kinds of costs.

The good news and bad news of property taxes

Renters never have to pay property taxes – at least not directly. On the other hand, homeowners are required to pay property taxes every year. You would have to check with your county assessor to determine your tax rate but assuming a rate of 1.35%, your property taxes would be $3470 for the first year. In most cases, this tax, along with homeowners insurance, will be tacked onto your monthly payment and then paid by your mortgage holder. As you can imagine, this will increase your monthly payment substantially. However, in most cases you will be able to write off your property taxes on your income taxes, which could be a good help whenever April 15th rolls around.

The house as an investment

It’s also important to understand that in the final analysis, buying a home is an investment. Like other investments, you need to make sure that it will grow in value over time. As a general rule, houses here in the US increase in value at the rate of 3% per year. Given today’s economy, that’s a pretty good return on investment. But if you were to pick the wrong neighborhood, borrow more money than you can afford or not take into consideration the costs of repairs and maintenance, you could very well see the value of that investment decrease. There are still hundreds of thousands of American homeowners that are underwater – owing more than their homes are worth. This is just not a position you would want to find yourself in.

The joys and pitfalls of renting

We’ve already mentioned what might be the biggest joy of renting, which is no repair and maintenance costs. You won’t ever have to to pay property taxes and your renters’ insurance should be much less than homeowner’s insurance as you would be covering only your possessions and not the structure itself. Your security deposit would be much less than the down payment you would be required to make if you were to buy and your upfront fee would consist of just your security deposit and a month’s rent in advance.

The biggest downside of renting is, of course, the fact that you’re always at the mercy of your landlord. A good landlord will take care of all maintenance and repairs in a timely fashion and basically leave you alone. But do make sure if you decide to rent that you read your lease very carefully. We have a friend who was recently kicked out of her townhouse by her landlord who decided she wanted to sell the unit. As is true of many things in life, it’s always “buyer beware” or this case, “renter beware”.

Which would be best for you?

Of course, this is a decision that only you can make based on your financial circumstances, how long you intend to stay in your house, how much of a down payment you could afford and your comfort level. Some people are simply happier when they live in their own homes while others are just as happy to rent. The important thing is to take into consideration the factors we’ve covered in this article and make a decision that will leave you feeling the most comfortable and in the best financial shape.

How To Calculate The Money Factor When Choosing A College

Man having financial problemsIf you or your child is headed towards the senior year of high school, congratulations! The majority of high school is now behind you. But there’s something big coming your way and it’s called choosing a college. So, where do you think you would you like to be – near the ocean, close to great skiing, in a small town or living the urban life?

Questions to ask yourself

While an important question when choosing a college is where would you like to live for the next four or five years an equally important one is which school or schools offer an education that would fit best with your career plans. In other words, if you believe that you seriously want to be a veterinarian, you’d probably be better off not going to a school that offers only a liberal arts education. Conversely, if your dream were to teach history at the college level, a school with a strong liberal arts bias would be a much better choice than one that includes the word Technology in its title. Of course, you cannot separate any of this from the fact that some schools may accept you and others may not. If you or your child is carrying a straight 4.0 average, has been active in extracurricular activities and a student athlete, the odds are that he or she will be accepted by most schools. But if he or she has been carrying a B average and not an athlete, some of those letters may be ones of rejection.

The money factor

Finally, there is the inescapable fact that college costs money. While it’s hard to figure this all out, a good way to start is by creating a spreadsheet using information from the financial aid offices of the schools you or your child is considering. This should include a column for tuition, room and board, books and fees, transportation, cell phone fees and miscellaneous expenses. Of course, your vertical column will consist of the various schools being considered. Once you’ve filled in this information you should have at least a rough idea of what a year at each of the schools will cost.

Half the equation

Determining what a year of college will likely cost you is only half the equation. The other half is calculating how you will pay for it. This typically will begin in January of next year when you fill out the Free Application For Federal Student Aid (FAFSA). You will need to complete this form even if you don’t think you’ll be applying for federal student aid because virtually every college in the nation uses it to determine what if any aid it will offer you or your child. As an example of this, you will need to have the following documents or information available in order to fill out your FAFSA. • Your Social Security number (it’s important that you enter it correctly on the FAFSA!) • Your parents’ Social Security numbers if you are a dependent student • Your driver’s license number if you have one • Your Alien Registration Number if you are not a U.S. citizen • Federal tax information or tax returns including IRS W-2 information, for you (and your spouse, if you are married), and for your parents if you are a dependent student: o IRS 1040, 1040A, 1040EZ o Foreign tax return and/or o Tax return for Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, the Marshall Islands, the Federal States of Micronesia, or Palau • Records of your untaxed income, such as child support received, interest income, and veterans non-education benefits, for you, and for your parents if you are a dependent student • Information on cash; savings and checking account balances; investments, including stocks and bonds and real estate but not including the home in which you live; and business and farm assets for you, and for your parents if you are a dependent student Finally, here courtesy of National Debt Relief, is an overview of the FAFSA and information as to why it’s critical you and your parents complete one.

 Before you take out a loan

One staggering statistic we read recently is that the average college student graduates owing around $30,000 in student loan debts. If you would like to keep your child from graduating this much in debt, be sure to ask the schools that he or she is considering for their Financial Aid Shopping Sheets. This is a form developed by the Consumer Financial Protection Bureau (CFPB). It’s now being used by more than 2,000 schools and is designed to provide parents and students with good information and a clear set of facts before they sign up for any student loans.

A helpful website

The CFPB has a section on its website titled “Paying for College.” You might take the numbers from the spreadsheet you developed on college costs and plug the information into this website to see comparisons of first-year college costs – three schools at a time. This will also show what you might owe in student loan debts when you graduate. Even if you have not yet received any financial aid offers from any schools, you should be able to use it to at least make estimates. You can also tweak the numbers by changing factors such as living in off-campus housing rather than in a dormitory and then how that choice would affect how much you might need to borrow in student loans.

What kind of aid might you receive?

Naturally, the best kind of aid to receive is the kind you don’t have to pay back. If you or your child is a stellar athlete, he or she might qualify for an athletic scholarship. And while academic scholarships are difficult to obtain, there is always that possibility. Beyond this most schools offer other aid in the form of work grants, grants-in-aid and what’s called work-study programs. In addition, the US Department of Education (ED) offers free financial aid in the form of Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), Federal Work-Study Programs, and Teacher Education Assistance for College and Higher Education (TEACH) Grants. It’s also possible that your state offers some forms of financial aid. Where we live there are Denver Foundation Scholarships and Boettcher Scholarships that cover the full costs of a four-year education. There are more than 30 other scholarships available to students in our state including one for young men and women who were golf caddies

A one-word recommendation

When it comes to borrowing money to pay for college, we have a one-word recommendation: Don’t – unless there are simply no other viable alternatives. Beginning life after college owing $20,000, $30,000 or more is sort of like having a millstone around your neck. It will limit many of your financial choices for at least the first three to five years after you graduate. You might find you have to take a job you don’t like very much just so you can pay on your student loan debts. And if you’re in a field where you will need a graduate degree, you would likely end up piling more debts on top of those debts.

The one word to avoid at all costs

If you are forced to take out student loans there is one word you want to avoid at all costs and it is the word default. You are considered to be in default on a student loan the day after you miss a payment. Yes, just one day and one payment. Ninety days after this, your lender will report your default to all three credit bureaus, which will have a dramatically negative affect on your credit score. It’s even possible that your debt will be turned over to a collection agency and trust us when we say this is something you just don’t want to see happen. Debt collectors have a reputation that’s well earned for being totally pitiless when it comes to collecting a debt. In addition, if you have a default on your record within the past three years you could find it impossible to buy a house using a FHA (Federal Housing Administration) guaranteed loan.

Not an easy decision

As you have read, there are a number of different factors that go into choosing a college or university, not the least of which is money. Many students today are electing to spend their first two years at a community college and then transfer to a four-year private or public school. This is a way to cut college costs considerably and yet still graduate from a “name” school. For that matter, many other students are choosing to get their undergraduate degrees from middle-of-the-road state schools and then use the money they saved to get their graduate degrees from more prestigious colleges or universities.

If student loan debt is already a problem

National Debt Relief recently launched a program that will help borrowers find a debt relief program for their student debt. It provides a consultation service that will match your specific student loan situation, employment conditions and financial capabilities with the right debt elimination program. It will also help with the paperwork that will allow you to enter into such a program. National Debt Relief charges only a one-time time flat fee that will be placed in an escrow account. There is no maintenance fee or additional charges. They will only withdraw your payment once you’re satisfied with the paperwork and the debt relief program you were recommended.

Are You Smarter About Personal Finance Than 16-Year Olds?

woman thinkingOne company recently tested 16-year olds on their knowledge of personal finance with some everyday questions about savings, tax, currency exchange and utilities. Almost a third of those tested scored 43% or less in this test.

Test yourself

Here are the seven questions that were asked. See how many you can answer correctly (answers at the end of this article).

1. Kat paid $5,000 for a car in April 2009. In the first year, the value of the car depreciated by 10%. In the second year, the value of the car depreciated by 15%. How much can Kat sell the car for in 2011?

2. Bob is paid $37,465 a year. His personal tax exemption is $6,000 for the year. If Bob’s income is taxed at 22%, how much income tax does he pay in a year?

3. Leonie has $2500 to invest for four years and can choose between two different savings accounts. Account One pays 3.7% simple interest paid out at the end of each year. Account Two pays 3.4% compound interest paid at the end of each period (year). Which account would give Leonie more interest over the four-year period?

4. Jenny wants to buy a new TV but is $300 short. She sees an advertisement for a loan offering $300 for eight months with a monthly repayment of $50. If she takes the loan, how much extra will she have to pay?

5. Andrew pays his electricity bill monthly. His current charge is $0.046040 per kWh. Last month he consumed 1201 kWh. If next month he reduces his electricity usage to 1100 kWh, how much money will he save?

6. Rachel is going on vacation in Spain and needs to change $300 into euros. The change kiosk in the airport charges 0.6% or $6.73 to change money whichever is the greater. How much will changing her money at the airport cost Rachel?

7. Sophie was left $6,000 by her grandfather and decides to invest the money for two years. Her bank offers her a choice of two savings accounts. Account One pays 3.1% on a monthly basis. Account Two pays 3.25% annually. Which account will give a higher closing balance with no withdrawals?

Understanding personal finance is critical

You’ll see in a few moments as to whether you’re smarter than a 16-year old about personal finance. I certainly didn’t know much about personal finance when I graduated from college and got married. I had worked fairly constantly since I turned 16 and about all I knew was that you should spend less than you earned. Of course, when I was in college I didn’t always follow that dictate. There were many times when I ran out of money before I ran out of month. I did finally learn the importance of spending less than I earned but it took several years for me to learn some of the important basics of personal finance.

1. Learn your spending patterns

The first step in becoming good at personal finance is to determine how you spend your money. I learned that the only effective way to do this was to track our spending for at least four weeks. This meant keeping track of not just the big stuff like rent and groceries but also the very small stuff right down to a candy bar I had at work. I did this the old school way with a notebook and a pencil. Today, thanks to all of the smart phone apps available, this is much easier. For example, if you were to choose it would not only track your spending for you but also categorize it so that you would be able to see exactly what you spent in areas such as groceries, dining out, utilities, clothing, hobbies, transportation, healthcare and so forth.

2. Compare this with your income

Once you see what you spent in the past month you need to compare this with how much you earned. When you do this you might be in for either a shock or pleasant surprise. The pleasant surprise would be if you spent less than you earned and had extra money to save or invest. The shock would be if you find that you spent more than you earned. If this is the case, you will need to review all of your spending categories with an eye towards determining where you could make cuts. As a rule, most people find the easiest places to reduce their spending are groceries, clothing, entertainment and dining out.

3. Save more by creating goals

Most people find that it’s tough to save money just for the sake of saving money. What’s better is to create one short- and several long-term goals. As an example of this, your short-term goal might be to take a nice vacation to Florida next spring while your long-term goals might be to buy a new car or to save enough for a down payment on a house. Whatever goals you create, you might spreadsheet them so that you will be able to see the progress you’re making towards realizing them. This can be a great incentive to stay on track in your saving.

4. Read books about personal finance

Assuming that you don’t have a financial mentor, the best way to get a better understanding of personal finance is to read some books. We like The Money
Book For The Young, Fabulous And Broke by Suzy Orman; the classic Think and Grow Rich, by Napolean Hill; Get Rich Carefully, by Jim Cramer; Rich Dad, Poor Dad, by Robert Kiyosaki; and today’s best-selling book on personal finance (according to Amazon), The Total Money Makeover, by Dave Ramsey.

5. Get a mentorcouple talking to a professional

The best way to learn about personal finance is to get a mentor – someone who has been there and has learned how to manage, save and invest money. If you’re fortunate, this person could be your father, an uncle or a cousin. Barring this, you’ll just need to be on the lookout for someone who is a successful money manager, who is well to do and would be willing to mentor you. Just make sure that you don’t come off as too “needy.” In other words, don’t pester that person with several financial questions every day. When you have a question about personal finance, write it down and start a list. Once you have a half dozen or more questions, you could then ask that person to sit with you for a half an hour or an hour to answer them. But try to not do that more than maybe once a month.

The answers to our seven questions

If you’ve been chomping at the bit to see whether or not you’re smarter about personal finance than a 16-year-old, here are the answers to the seven questions we posed at the beginning of this article.

1. $3825
2. $6,922
3. Account #2
4. $100
5. $4.65
6. $18
7. Account #1

So how did you do?

If you were able to answer all seven of these questions correctly, give yourself a big gold star. And congratulations! You’re officially smarter about personal finance than the 16-year-olds who were tested on these questions. On the other hand, if you were able to correctly answer only two or three of them, you need to get to work and read some of the books about personal finance that we listed above. Think of it this way. It might take you several weeks to read one of those books but it could make the rest of your life a lot better. If your personal finances are not currently under control, this would help you better manage them. You would be saving money each month towards your important goals. And it’s likely that this would take much of the stress out of your life.

Why A Reverse Mortgage Could Be Your Best Friend or Your Worst Enemy

House and calculator and credit scoreFor many years a reverse mortgage was seen as a last resort for older people who had a lot of home equity but were cash poor. Today, it’s about to become a mainstream financial strategy. Or at least that’s what financial service firms and federal regulators are hoping for. But you should be cautious about jumping in and understand that it could be a very good friend or a very bad one.

The basics of a reverse mortgage

A reverse mortgage is one that lets you borrow against your home equity once you are 62 years old or older. The money can be taken as monthly payments for as long as you occupy the house, as a lump sum, as advances through a line of credit or some combination of these.

Good news

The good news is that a reverse mortgage doesn’t have to be repaid until you move or die. To be eligible for a reverse mortgage you must own your home free and clear or you must pay off all existing liens with proceeds from the reverse mortgage. In the event you have an existing mortgage balance, you will pay it off completely with the proceeds from the reverse mortgage at time of closing. Generally speaking, there are no credit score requirements to get a reverse mortgage.

How much could your borrow?

The amount that you can borrow on a reverse mortgage generally depends on four things – the current interest rate, your age (the older the better), government imposed lending limits and the appraised value of your home.

How a reverse mortgage could be your best friend

There are several important pros to a reverse mortgage. For one thing, it’s easy to qualify for one, as there are no income requirements or any credit score requirements. Second, a reverse mortgage allows you to stay in your home. A reverse mortgage would allow you to pay off any existing mortgage so that you would never again have to make mortgage payments. Just as important, a reverse mortgage can never get “upside down.” This means your heirs would never be personally responsible for anything more than what the home sells for. Your heirs that inherit the house would be able to keep any remaining equity after they pay off the balance of the reverse mortgage. The proceeds from a reverse mortgage are not taxable and the interest rate could very well be lower than traditional mortgages and home equity loans.

Past problems

These mortgages have had many problems. In particular there has been some very misleading marketing and inappropriate lending – at least according to the Consumer Financial Protection Bureau. In response to this, there are now federal rules that went into effect recently. One of these reduces how much of your home’s value you can borrow against. This new legislation also requires lenders to make sure that you can cover the upkeep of your home, as this is where many older couples ran into problems. They used the money for a better lifestyle, forgetting that their homes required upkeep. When a major problem occurred such as needing to replace the roof, there just wasn’t enough money to cover the cost and they were forced to take out new loans.

How a reverse mortgage could be your worst enemyhands chained while holding coins

For one thing, a reverse mortgage has the same fees as a traditional FHA mortgage (see more details below) but are higher than conventional ones because of the insurance costs. These costs includde FHA mortgage insurance and an origination fee. Between the higher interest charges and the upfront fees you might be surprised at how little money you actually get. While it’s your equity, the bank will get a lot of it.

Second, your heirs might not get the house. With a reverse mortgage the loan is paid off when the house is sold. This means your heirs won’t get the house. However, it is possible for them to keep it if they pay off the reverse mortgage after your death. However, as a rule this means that the money will come out of your estate, which will reduce the total amount that your children and grandchildren will get. If you hope to leave a legacy, this can be a real negative.

A third con is that if you move out you will have to repay the loan. The fact is that the only way you can keep from having to repay the loan is by staying in the house. You will be considered to have “Moved out” if you haven’t lived in your house for a year. This includes if you moved into a long-term care facility. This means if you are no longer able to stay in your home, you must start repaying that reverse mortgage – at a time when money is likely tight for you. This can put a strain on any budget.

It’s important to keep in mind that you will still be responsible for maintaining your home and paying its costs. You will need to pay property taxes, your homeowners insurance and for regular maintenance on the house. Even if you can get a reverse mortgage big enough to cover all these expenses, this can still make for a difficult situation.

Finally, the balance of the reverse mortgage loan gets larger over time while the value of the estate or inheritance might decrease. While your Social Security and Medicare will not be affected, Medicaid and other need-based government assistance programs can be affected if you withdraw too much funds and do not spend them in one month. Finally, reverse mortgages are not well understood by most people. Fortunately, there is independent reverse mortgage counseling available that can help.

Making these loans more appealing

The financial service companies have tried to make these loans more appealing. One Columbia Business School professor said that “home equity is the key to Americans’ retirement security, so it’s crucial to responsibly offer reverse mortgages.”

Standby credit

Some financial advisors are even promoting reverse mortgages as a sort of standby credit. These are not like home-equity lines of credit that can be frozen during a financial crisis. In comparison, reverse mortgages will always stay open. If you leave the mortgage untapped, your credit line will actually grow each year by the interest rate you are charged. This makes it a great way to build a hedge against future financial needs.

Approach it carefully

You do need to approach a reverse mortgage carefully given the stakes involved. Here’s how:

Weigh the costs

If you were to get a reverse mortgage on a $500,000 home, you could pay $2500 for mortgage insurance, $3000 in closing costs and a $6000 origination fee. Given these steep upfront costs, this makes it even more important to take a hard look at other resources. For example, do you have a cash-value life insurance policy you could tap? Or could you trim your spending?

You would have to pay these closing fees even for a line of credit that you don’t use. In this case, there would at least be a peace of mind knowing that you have a sure source of cash and don’t have to sell if times get tough.

Make sure you will be staying put

If you think that you will be in your home for many years, than a reverse mortgage could make sense. Just remember as you age, you might want to make a move. For example, you might decide you want to be closer to your kids or grandkids. While a reverse mortgage may no longer be something of a last reboot sort, it’s still a tough call.

Here’s Budgeting Advice From Four Top Money Experts

business man looking tiredThere’s an old saying that opinions are like belly buttons – everybody has one. A lot of people also have opinions about budgeting. If you’re lucky you might have gotten budgeting advice from your mother or father. If so it probably consisted of things such as “have an emergency fund,” “don’t spend more than you earn” or the old standby “a penny saved is a penny earned.” And while this is all good advice, the best comes from the real experts – people who have been there, done that and learned from bad experiences about good budgeting.

It’s great to earn money and the fact is the more the better. But what’s just as important is how you spend it. Even if you’re pulling in big bucks but spending it all recklessly, you’re on your way down a very slippery slope. No matter how much or how little money you have, budgeting how you spend it is one of the most critical skills you can learn.

Here are four top money experts each with a piece of advice that could help you do a better job of budgeting.

Cut back 10% in family spending – Suze Orman

You may be familiar with Suze Orman. She first became well known for her book The 9 Steps to Financial Freedom and for a time had her own TV program on CNN. She also had a six-episode TV series America’s Money Class with Suze Orman on the OWN Network. Suze’s budgeting tip is to cut your spending by 10%. This is enough of a reduction that you should start to see your savings pile up very quickly, which would make it easier for you to pay back any debts and cover your actual important expenses.

The good part according to Orman is that 10% is not enough of a cut that you will feel as if you are depriving yourself or your loved ones of anything. As an example of this if you’re used to spending $100 on movies and gaming every month and trim that amount down to $90, this is not going to cause mass angst.

Overbudget for groceries – Dave Ramsey

Dave Ramsey has had his own radio show for many years and has made numerous TV appearances. He is a financial author, radio host, television personality, and motivational speaker who may be most famous for having developed the snowball strategy (see the video below) for getting out of debt. Dave’s advice is to overbudget for groceries. He believes that when most of us put together a budget, we don’t consider our grocery bill at all. Even if we do, we tend to severely under budget. So while we may think that we’re putting $100 into savings every month, $80 of that is probably actually going to buy things that we forgot to calculate in our grocery budget.

His advice is that next time you go to the grocery store, keep all of your receipts and then add them up at the end of the month. Make sure that you include the times that you ate out because even though fast food can hardly be considered food, it still technically is. Then after you have added up all those receipts, add $50 to the total – just in case. That will be your real grocery budget and if you go under it, that’s terrific. Going under is always better than going over.
In the event you’re having a problem with debt and wonder about the snowball strategy for becoming debt free, here’s a video courtesy of National Debt relief where Dave explains it.

Look to the past for inspiration – Rick Adelman

Richard Leonard “Rick” Adelman is a retired professional basketball player and coach. He coached for 23 seasons in the NBA (National Basketball Association) and just retired as coach of the Minnesota Timberwolves. His advice is that when you’re putting together a budget you need to go back in time – obviously not too far back. But you should go back at least a year, find your bill history and then add everything up. If possible try to find receipts from your extracurricular activities such as dining out or movies and add them to the final tally. This should give you an excellent idea of how much you will spend this year and you could then budget accordingly.

Of course, if something serious has changed in the past year such as a new higher mortgage, or heaven forbid, septuplets, you need to adjust for that. But if your life has remained essentially the same since a year ago, this would be a great way to prepare for the present.

Have “Magic” spending jars – Gail Vaz-Oxlade

Gail Vaz-Oxlade is a financial writer and TV celebrity who lives in Canada. She is the host of the Canadian television series Til Debt Do Us Part, Princess and author of the book Money Moron. Gail says that she has been told over and over by people that they don’t know how to budget regardless of how many articles or books they’ve read, how many worksheets they downloaded off the Internet or how many times they’ve tried – they just can’t do it. However, once she started the show Till Debt Do Us Part and introduced the concept of “magic” spending jars, many people are now able to budget successfully.

So what are “magic” spending jars? What these are is that once you’ve budgeted for your fixed expenses and your important variable ones such as food, debt payment and gas, take the money you have for clothing, entertainment, travel, dining out and other similar ventures and put it in a jar. You then use the money in the jar only when you are partaking in those fun events. That way you’ll no longer find you’re surprised by suddenly being broke because you just had to get 10 toppings on that pizza.

Just in case you’ve never made a budget

If you’ve never actually sat down to create a budget the advice from these top money managers might be interesting but sort of like listening to a speaker lecturing in Spanish when you don’t understand a word of that language. If this is you, here are some quick tips for creating your first budget.

1. Track your expenses.

Go back and read what coach Rick Adelman said about digging out your old bills. That’s a good start but you really need to know what you’re doing now, which means tracking your spending for at least 30 days. There are numerous smart phone apps available that will make this easy. We happen to like because it’s free, easy-to-use and a great budgeting tool. If you use Mint to track your spending it will then categorize it for you so you can see exactly where your money is going.

2. Create categories.

If you’re not using an app or some financial software to track your spending that will automatically organize it into the categories, you need to do this next. Here is a list of some major categories as a starting point. Naturally, you’ll want to tailor this to your own spending meaning that you may need to add and subtract some categories.

• Home
• Utilities
• Food
• Family obligations
• Health and medical
• Transportation
• Debt payments
• Entertainment/Recreation
• Pets
• Clothing
• Investments and savings
• Miscellaneous

3. Divide by three

Once you have your spending divided into categories, you need to group them as follows: fixed expenses, variable expenses and extracurricular expenses. Your fixed expenses will be those that are the same every month such as your mortgage payment or rent, your utility bills, your auto loan(s), credit card debts or a personal loan. Variable expenses will be those that you know you have virtually every month but that very in cost. This would typically include groceries, clothing, investment and savings and transportation. Finally, ‘extracurricular” expenses would be those that you don’t have to spend money on such as dining out, entertainment and clothing.

4. Add up your fixed and variable expenses

Add up your fixed and variable expenses and compare this total to your monthly income. If they exceed your monthly income, you will have to make some radical changes. You’ll need to take a hard look at your variable expenses to see where you could make cuts. Your objective should be to get your spending down to at least 10% below that of your monthly income. The categories where people generally find it easiest to reduce their spending is groceries, clothing and transportation.

If making these cuts still isn’t enough to get you to at least 10% below your monthly income, you’ll have to become more radical. You may have to move to a cheaper house or apartment, trade in your car for a less expensive one or find ways to reduce those credit card debts.

5. Be flexible

Once you develop a budget, don’t think of it as something hard and fast that can never be altered. You will need to continue tracking your spending and then make adjustments based on what you learn. For example, you could find that no matter how hard you try you simply can’t get a month’s worth of groceries for the $400 you had budgeted. So increase your grocery budget accordingly and then find some other category where you could reduce your spending to make up for the money you’ve added to your grocery category. In other words, don’t think of your budget as something engraved on stone. Think of it more as a game plan.

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