Hey, everyone checking out this page, FYI I am giving away two iPod nanos. (click to check it out)

Last night my girlfriend and I got into a discussion over children and expenses. Though I am about as stubborn a person as you can find, she made a good point about affording kids and kids expenses that got me thinking about big picture. The truth is that as life goes on, there will never be a BETTER time to save money and pay off debt. For that matter there will never be a better time to do ANYTHING. Follow me here…

Saving money and paying off debt NOW
-No matter where you are in life there is no better time. If you are recently graduated from college or in your 20s and you can’t save money and pay off debt right now, how the hell are you going to do it when you are when you have a new home complete with mortgage payment, how about a car and car insurance. Or if you already have a home how about wife/husband, kids, diapers, babysitter, kids sports, family vacations. Or if you already have kids how about when your kids go to college? Or if your kids are all out of college and you are in your say, 60s, how about increasing cost of insurance, and medical bills. Or even if you are older and in good health you best be saving and paying off debt before your retire. As you can tell there is NEVER a better time than now. Salary increases WILL just get eaten up if you don’t get into the right spending habits right now.

Start a business NOW
A lot of the same things that apply to saving and debt also apply to starting something new. One of my friends told me he didn’t want to start a business until he had saved up a good amount of money and had “learned some more.” Now thats great and all, except that his idea had to do with social networking and quite frankly who knows where thats going to be in five months let alone FIVE or TEN years. And who wants to be 30, 40, 50+ working on a college social networking project? For some reasons I get visions of that old perverted creeper standing around at the bars just waiting for some college girl to be drunk enough to wander over to him. Other reasons: when do you have more time than before you are married with kids?

Getting in shape NOW
Theres that peyton manning commercial where he gives the pep talk that if you aren’t a professional athlete or under the age of 23 forget the six pack and just buy a bigger shirt…well there is a certain truth. As we age our metabolism slows down and our hormone levels drop making it harder to lose weight and harder to add muscle. Just think about having to run twice as far when you are 40 as you do when you are 20 to lose those l-b-ses, that should motivate you, you lazy couch potatoe you. In fact, stop reading this article and go to the gym, then come back and finish. Unless you’re at work, then you get a pass. I won’t even mention the fact that being healthy with benefit you greatly as you age. Oh, I guess I just did.

Clean your house NOW
The dirtier you let something get (I know, I have lived with 5 guys before) the harder it is to get it cleaned up later. Do it now, unless you like dirty crap all over the place. Especially dishes, nothing smells better than a dish thats been sitting in the sink for days or a week or a month or NINE MONTHS (I actually saw this at an apartment several years ago. Apparently they simply stopped using dishes but didn’t bother to clean the ones that HAD been used).

Do your taxes NOW
I hate doing taxes. I would rather clean the bathroom at your local gas station than do taxes. Really. That being said, getting it over with is better than having it hang over your head.

Take risks NOW
Invest in risky stocks. Don’t even bother with bonds. Go skydiving. Travel to a part of the world where you dont speak the language. These are the kinds of things you can only do (responsibly) when you are young.

The absolute best thing you can do for your worries and regrets in the future is taking care of them right now.

*Check in later for my story on how I saved a guys life last night*

As my girlfriend rightfully pointed out, it has been a while since I have posted about getting rid of debt. Well, fear not, I have a whole laundry list of tips to erase your debt in no time.

Lets start with what is something you can do in fifteen minutes that can save you a decent sum of money month after month. If you are reading this, there is a decent chance you have credit card debt. There is equally as good a chance that at least some of that credit card debt is high interest. If you are paying 17,18,19, … 22….30% interest on your credit cards, thats highway robbery! Lets do something about it…

Call your credit card company any request an interest rate reduction.

When you first talk to someone in customer service you are talking to someone low on the totum poll. They probably dont have the authority to reduce your interest rate. I did some digging and my credit union has a clause that says “you have the right to request a supervising officer.” Ah, yes, you most definitely WOULD like to speak to a supervisor. When you have the supervisor on the phone, request the rate reduction. The vast majority of the time they will give you a reduction. If they are reluctant, threaten to balance transfer to a lower rate card. Unless you have terrible credit, this is a very credible threat and will do the trick.

How much will this save me?
I have heard of reductions anywhere from 5-13%. Thats huge savings if you have a couple thousand dollars on your credit card. Lets say your credit card has a balance of $5000.00 at 22%. If you get that reduced to say 12%, thats gonna save you $500 in a year. Thats $41/month. Heres the kicker, keep paying the amount you were budgeted to before you got your rate drop. That extra will go toward the principal and the next month you will be paying even LESS interest and MORE principal. Watch that debt shrink like lawyer in church.

Where do I find this magical number that I need to call to make these wonderful things happen?
Well either you need to:
1) paypal me and I will send a carrier pigeon with the number strapped to its leg
or
2) flip over your card and call the number on the back

Now you see the light, so stand up for your right. Get on that phone!

There is something that gets left out a lot when the topic of personal finance comes up. It is one of the most simple things to grasp, yet also one of the hardest to do. It is something that I personally am terrible about if I don’t watch myself. Ok enough suspense already, wheres the beef?

The secret is simple:

Do not buy things you do not currently have enough money to buy.

Ok, you’re thinking, thats pretty obvious. But is it really? Lets dig a little deeper here. If you are like me (note: not referring to good looking and intelligent) then how many times have you said to yourself “well, I have extra on my next paycheck so I will just fit it in there.” Well, there is a good chance that something else will come up next pay period, so then both the original charge AND the new charge get put off. This is what I like to call the reverse snowball. Snowballing is a common metaphor for how to get rid of debt….well this is the best way to build debt.

Here is a a good example. In the consulting environment I get paid a bonus based on how many billable hours I worked for a customer in a given month. I do not figure this into my budget and it varies wildly based on what customer, what Im doing etc etc and its always paid on the second paycheck of the month. For the first part of the month, if I know Im getting a good sized bonus for the month I will overspend outside my budget because, hey, extra money is coming. The problem is that I never know exactly how much it will be and it makes it very easy to get carried away and go wild with the spending. Yes, even a financial titan such as myself will be defeated occasionally by spending temptation. Its my Achilles heal if you will. Ok enough with the greek mythology. Lets strategize:

1) Stick to the budget except in case of absolute complete and total necessities. Medical expenses, car breaks down, furnace goes out and it’s so cold your beta fish is swimming under a layer of ice (true story)….these things are ok. NFL Sunday ticket is calling your name, not ok (also true story).

2) Budget according to only what you KNOW you will make.

3) Make an emergency fund. Yes I know its easy to use credit as an emergency fund, but you should be putting money aside anyway.

4) Be honest with yourself. Most people I know are masters at telling themselves they can easily pay something off later. Don’t do it.

5) Take care of yourself and your things so that you stay healthy, and they stay working. The best way to cut out medical and other expenses is preventative action.

Bonus: Pay yourself first, this will work wonders in keeping you to #1.

Since the federal reserve has been cutting rates like interest is goin out of style there has been a renewed interest in home equity loans and home equity lines of credit. So what exactly are these? What is the different? Should I care?

What is a HEL (home equity loan)?
This is a type of loan where the borrower uses the equity in their home as collateral. These loans a lot of times are used to finance home projects, pay off high interest credit card debt, or pay medical bills. A home equity loan requires good credit history and a good amount of equity in the home. In this loan, the borrower receives a lump sum at the time of closing and nothing more can be borrowed. The max amount of money that can be borrowed is determined by variables including credit history, income and the value of teh home. The amount that can be borrowed is usually up to the entire appraised value of the home minus the first mortgage. Closed end loans have fixed rates and can be amortized for periods of usually up to 15 years.

What is a HELOC (Home Equity Line of Credit)?
A Home Equity Line of Credit (often called HELOC, pronounced HEE-lock) is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower’s equity in his/her house. This is also called an open-ended home equity loan.

What is the difference between a HELOC and a come equity loan?
The different is that in a HELOC the entire sum of money isn’t given to you up front. Instead you are given a line of credit, very similar to having a credit card. At closing you get a specific credit limit that you can borrow up to. During the period of time you are allowed to borrow you can borrow and pay back what you owe plus interest. Depending on how much you use the home equity line of credit you will have a monthly payment, generally only the interest on whatever is owed. Another difference is that the interest rate on a HELOC is based on the prime rate as set by the federal reserve. This means that the interest rate will change over time. Generally HELOC rates are lower than home equity loans because they are variable, however if there is significant economic turmoil you could get stuck with a very high interest rate.

For each, what are some of the advantages and disadvantages?

Home Equity Loan Advantages:
-All the money up front
-The interest is tax deductible
-Low closing costs

Home Equity Loan Disadvantages
-Fairly high interest rates
-No grace period, payments start right away
-No flexibility

HELOC Advantages:
-The interest is tax deductible
-HELOCs are viewed as not as bad in the eyes of creditors as a traditional home equity loan
-can be interest only
-no prepay

HELOC Disadvantages:
-Variable interest rates mean that rates can rise over time.
-Failure to keep to terms can and probably will result in foreclosure.
-No caps on interest rate
-Minimum draw amounts

As far as times to get home equity loans go, this is a good time. The federal prime interest rate is the lowest it has been in years. If you have sizable high interest debt, a HEL or HELOC might be a good idea…just remember putting up your home for collateral is dangerous!

What has she taught us about money? Its not that money can turn a slightly spoiled hollywood teen into a psychopath, though you could probably make that argument. No, instead it is she has taught us:

“Im a slave for you”

I have a friend that recently has crossed the line from frugality into cheap…in his obsession to save money he has stopped doing anything worthwhile. Everyone has a friend that sometimes fits into the category of Mr or Ms Cheap. You know, instead of the Teddy Roosevelt of frugality, they cross the line into Ross from friends, taking salt out of the hotel salt shaker and unscrewing light bulbs. Ok so my particular friend hasn’t reached that point yet but many people have. They have become slaves to their money.

Just for fun, lets go over Mr Cheap ala Ramit’s definitions.

Mr Cheap:

Mr Cheap lets his friends buy all of the rounds at the bar
Mr Cheap refuses to lend you dollar when you are one dollar short for lunch
Mr Cheap buys things simply because they are cheap
Mr Cheap affects everyone around him
Mr Cheap dismisses ideas because they cost money
Mr Cheap is upset when his friends decide to do something that costs money

Worst of all Mr Cheap drinks PBR. Terrible.

So What is the point? Your friends suck?

No. The point is that you never want to get to the point where you are no longer controlling your money, but it is controlling you.The whole point of personal finance is to manage your money so that you can life a good life. When your money is controlling you, it is one of the most stressful situations possible. Even if you are in debt badly you should be able to allocate at least a small amount of money for fun and entertainment. Pay yourself first. The dog should always wag the tail, never the other way around.

I just got done seeing an article about some super bowl tickets selling for 15k and it reminded me of the recent Hanna Montana/ whoever Cyrus craze where people were paying these outrageous amounts of money in ticket bidding wars. Now, one tenant of sales is that the more valuable you perceive something to be to other people, the more valuable it becomes to you.

Another good example was a few years back there was some sort of insane Tickle Me Elmo craze where parents were spending hundreds of dollars getting these toys right before Christmas.

The point is, next time you really want something and are getting caught up in chasing after it, take a minute and think about what it is really worth to you. A little trick I use is to think about how many work hours something costs. Do you really want to spend 3 days working for a talking sesame street doll? or a month working to take your child to see a concert?

If I were giving advice to someone, I would tell them not to buy a new car. I would also tell them not to finance a car, but instead to save up and buy a late model used car. I would also advise someone to buy a car with low insurance premiums that gets excellent gas milage. All of that said, this weekend I bought a new car with higher insurance premiums that gets average gas milage (though much better than my previous car). I also financed it through my credit union. However, it wasn’t an impulse buy, it was something I did a lot of thinking about.

There were several reasons I went the route I did:

Professionalism – my previous car was fun (A Dodge sports car) but was more akin to something a high school kid would drive than a college graduate working for a consulting firm.

Need to get rid of my previous car – I was almost up on my warranty and did not wish to pay for an extended warranty. Also private party sales of my car are very slim.

Low interest rate – I was able to secure a very low interest loan through my credit union.

Personality – The car I got is very much a reflection of my personality.

Carpe Diem – I actually deteste this saying, but for me to have a new car, this is the time.

Budget – It fits into my budget

Resale value – It is one of the highest resale value cars on the market…which was actually one of the reasons I decided to get one new instead of used. The used prices were not much lower than the new prices.

Color – As odd as this sounds, the color I wanted was only available on the ’07 model.

Without further ado:

Today was I driving back to work after watering my girlfriends plants at lunch while she is out of town (turns out in 100 degree heat its particularly hard to keep plants from drying up) and I heard an ad on the radio for “The best credit counceling you can get.” Some other common things you hear pretty often are:

“We are here to help!”

Ready for the truth?  There is absolutely nothing that can erase bad credit or bankruptcy.  As far as credit counseling goes your best bet is *hold your breathe for this one* yourself! Oh and thepennysaved.com obviously.  Chances are, you already know exactly why you have credit problems.  It boils down to one or more of the following things:

1) You don’t have enough money to pay your bills
2) You forgot to pay your bills/ignored your bills
3) You didn’t know you had an outstanding debt

Well, instead of going to someone who will charge you for their services, allow me to do the counseling for you.  Solutions:

1) You don’t have enough money to pay your bills
You need to reduce your bills or earn more.  This is the most difficult of the three situations.  Sometimes this one is painful, very painful, but its also very simple.

2) You forgot your bills/ignored your bills
If you keep forgetting to pay bills (which I do sometimes myself) the best thing to do is find a way to organize it.  I recently started putting all my bills on a tab in my budgeting excel spreadsheet with due dates and its amazing the difference it makes.  If you ignored your bills, don’t ignore your bills.

3) You didnt know you had an outstanding debt
This one is the most complex of situations because you may or may not be able to have your credit fixed depending on the situation.  I had a collections agency for blockbuster  report me for “nonpayment” but what happened was that I had paid my late fee at a different location.  I challenged it and won.  On the other hand, a few years ago I had a credit card that I thought I had made the minimum payment on but was actually below it.  The notices of past due were sent to the wrong address so by the time I figured it out I had a blemish on my credit score over a $11 problem.  I contested that one extensively but never could get it fixed.  It hasn’t had a lasting effect on my credit but if it had been something bigger, things could have been much worse.  In any case, the moral of the story is at least try, you have everything to gain.

I recently was rechecking my credit to see where I am at these days.  When I bought my house my score was around 760 but since then I had one nasty occurence where I forgot about a bill and it went something like 90 days late and I got a black mark on my credit.  I remember years ago I had looked up what on earth goes into the credit score…and the truth is, no one knows for sure what the EXACT formulas are.  Its some sort of industry black magic where they are afraid to give away the secret.  In any case I did come up with some things that I had been told by various people that, as it turns out, are about as truthful as OJs denial.

Myth #1 – Checking your own credit will lower your score
You can check your own score as many times as you want without hurting your score, but make sure you do it via a legit site and not at “Joes one stop credit shop.”  One example of a good place to go is right to the source, such as equifax. 

Myth #2 – I have to have perfect credit to get the best rate
The truth is, you just have to have a GOOD score to get the best rates. Generally a score of 700 or higher will get you the best rates available.

Myth #3 – You only have one credit score
 Actually, you have three credit scores, one from each of the three major credit bureaus.  They vary between them, so its not a bad idea to check all three.

Myth #4 – Closing old accounts will help improve your credit report score
Canceling old credit accounts can and generally WILL lower your credit score because it makes your credit history appear shorter.  If you have old accounts, keep them open.  Unless you have a ridiculous amount open, having too much credit available is much much better than botching your credit history.

Myth #5 – Your age/income/sex/race/ are factored into your score
They aren’t.

Yesterday I was browsing around various personal finance forums and I just could not get past how many people were giving terrible terrible advice. Not just bad advice, we are talking the kind of advice your friends give you after 14 or so beers. Whats worse is that a lot of these people eat up the advice like they’re plastered too. Here is a direct example of a question asked:

“I am 33, my husband is 36. As stated above, we save $29,200 per year for retirement. Add our company match and our retirement savings reach about $35K per year. We hope to retire in our mid 50′s. My husband will have a pension, I will not. We don’t have credit card debt, but have a mortgage (200K), one car loan (18K) and student loans (16K). Should we be paying down this debt instead of maxing out our retirement savings? Basically, is it foolish to save for retirement and have current debt???”

So what is the very first response to this?

“The first thing you need to do is pay off debt. I would stop contributing to the 401(k) and Roth IRA at this time.”

The poster then went on to say some other crap which I ignored because it was all I took not to register and post a reply. (Later I noticed the thread was over a year old.) In any case this is a great example of 1) the wonders of the interwebben to spread false information and 2) people being so debt-phobic that they fail to really analyze financial situations. In this case the student loans and car loan were both around 4%. Lets see, tax deferred compounding interest with company match or pay down debt at a 4% interest rate?

Here is my suggested flow as far as money allocation:

401(k) max company match —> High interest debt —> Max Roth IRA —> More 401(k) —> Low Interest Debt —> other investments

Lets break this down a bit becaues you might be wondering about my priorities. There is a specific reason for each step here.

401(k) max company match – If your company matches every dollar up to say, 3% then you are getting a raise of 100% on that money contributed. Lets take Joe Graduate who makes $60,000.00 a year. That 3% match is $1800.00 per year.

High interest debt – This one is fairly self evident. If you are paying 25% on your credit card that is a ton of money down the drain.

Max Roth IRA – Its important to contribute to the Roth IRA while you can. There are contribution limits (currently $4000 if you are under 50, $6000 if over 50) as well as income limits ($99,000.00 currently) to be able to contribute. For more information read my Roth IRA basics.

More standard 401(k) – Tax deferred? Compounding interest? What a deal!

Low Interest Debt – The truth is you could probably come out with more money doing various investment strategies rather than using the money to pay off low interest Debt, especially considering things like student loans and mortgages being tax deductible. However, things like low interest car loans/credit cards are good things to pay off because they are liabilities, and missed payments could mean interest rates rise. Plus there is the peace of mind factor.

Other investments – If you are a young professional and still have money left over I applaud you, you’re way way way ahead of the game. This means its time to save up an emergency fund and if you’d like, find a discount broker and ease your way into buying some other securities.