Archive for March, 2010

How to Establish Emergency Money

Savings Guidance | Posted by admin
Mar 29 2010

Inevitable and unexpected things can happen anytime. And life always gives us surprises, leaving us with expenses that we usually didnt plan for. Sickness, accidents and other form of injuries can come and your budget may not be enough. Such occurrences can create debts and you cannot recover easily from it. It is for this reason that emergency money is really needed now and again.

Emergency money or fund is money that you set aside not as an investment or savings but for emergency purposes. It isnt money for groceries and other needs but strictly for emergencies. Establishing an emergency fund is always important especially in bad times. What matters is you set the money aside consistently then gets it only for real emergency use. The success of your emergency fund depends more on consistently saving your money and leaving it there unless theres an emergency.

It is advisable that your emergency money contains about three months worth of living expenses. It doesnt mean that your emergency money should be equal to your salary for three months, but you have to make sure that the money you put away for this purpose is enough to sufficiently handle whatever emergency that may come up.

It is way easy to calculate the amount that should go to your emergency money. What you need is enough amounts to cover the rent of your apartment, to pay for your bills and your car, to purchase food and cover other expenses for a normal month. Experts based the three-month rule from the reality that majority of short-term incapacitating sickness need almost three months to heal and recover.

You should make sure that your emergency money is a liquid investment thats very accessible. Of course, theres always a risk that if you dont have that self-control, you can easily get your money for impulse shopping, vacation trips and for buying some needed equipments. Because of this, you need to lock your emergency money up and hide the key.

The best thing that you can do to secure your emergency money is to put it in a very liquid account like money market account or savings account.

Money Market Funds. The most famous option is money market account. This is a liquid investment that is short term and can be accessed through mutual funds and several banks. These banks and mutual funds also provide cash type liquidity. Putting your emergency money in a money market account will give you nominal rate of return thats above the average savings account rate of a bank.

Savings Account or Certificate of Deposit. Other option that you can possibly do to your emergency money is to put it in savings account or some other assets which can be liquidated easily without taking a loss. There are lots of CDs that would meet this criterion and can be considered as an option. Putting a portion or all of your emergency money into a CD or certificate of deposit will give you higher interest rate. When your certificate has already matured and the interest has been gathered, you have the choice to transfer it into a savings account or you can put them again in a shorter-term certificate.

Remember that the longer the term of your CD, the higher its rate will be. However, you have to make sure that you didnt lock up your emergency money for too long, because you might beat its purpose of having an easy access.

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Budgeting When Your Paycheck Varies

Bank Savings | Posted by admin
Mar 28 2010

How can you decide how much you have for bills and expenses when your paycheck varies from one payday to the next? That’s a question a lot of people struggle with.

A few of the occupations that I can think of off hand that could fall into this category are waitresses or waiters working for salary and tips, truck drivers that are paid by the mile and never know how many miles they are going to get, the self-employed that their business income varies from season to season, and the list could go on.

Trying to manage your finances with a steady income is hard enough but when you never know what your paycheck will be seems almost impossible, but it’s not. It is, however, going to be a little more tricky.

In my Budget and Bill Organizer I talk about averaging your expenses like your phone and electric bills that vary from month to month. The same principle can be used to average your income.

The first step you need to take is to find records of your pay for as far back as you can. It would be best if you had records going back for at least 6 months.

Take these records and total the amounts you were paid for the entire period. Then divide that by the number of months you have records for. This will give you your average monthly income.

If you don’t have any record of your previous pay you may need to go to your employer to get the information. If there is no way to get this information you should start a log of how much you get paid and use this to develop your budget.

Once you have determined your average monthly income you will need to develop your budget just as if this was your regular pay.

Here’s where it gets tricky. You aren’t always going make the amount you have budgeted. The only way to handle this is to save when you make more than what you have budgeted.

Here’s an example:

You have determined that your monthly budget is $2000 per month;

In January you earn $2500. You will need to put away $500 of that money so that you can make up for any month that your income falls below $2000.

This sounds like a simple solution to a complex problem but it may not be as easy as it sounds unless you accustomed to saving money. It will take some discipline to make sure that money is there when you need it.

There could be a bright side to this method. If you are able to put the extra money away and you have several months that you make more than your budget you could end up with a sizable savings account.

When setting up your budget make sure that you don’t underestimate your bills and expenses. This is one of the major reasons many budgets fail.

By averaging your income it will prevent the “Feast to Famine” approach to your spending. It only makes sense to spread your income out so that you can cover all of your bills and expenses every month.

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How To Build Retirement Security

Savings Guidance | Posted by admin
Mar 20 2010

Knowing if you have saved enough is just part of retirement security. The other part involves creating an investment scheme that will create income without touching your savings.

If youre past 40 or in your 50s, things are a little more difficult. Its difficult to predict the amount of income that youll need during retirement. The needs and interest rates are bound to vary during that period.

In an investment plan, the traditional advice of putting your savings in dividend-paying stocks and corporate bonds cant be relied on anymore. A portfolio like that tends to hurt over time and risk using your savings too soon.

Have enough savings.

To determine if you have saved enough, there are web tools available. Make sure that you understand the assumptions in the tool. You may also hire financial planners to do the numbers for you instead. Look for one that uses the latest income-planning tools. Do not make unrealistic assumptions on the returns of the savings and the investment incomes. Worst, do not make bad assumptions on your spending.

Be prepared for deep and long recessions. Assume that youll spend at least as much as you do now.

Create a portfolio for both growth and income.

As soon as you have enough saved, you need to set up a system that allows you to put your money into stocks for the long-term, while putting away enough for fixed income.

Many financial planners advise you to place your retirement money into three portfolios.

1. The first portfolio is for expected expenses next year.

2. The second portfolio is for fixed income investment whose income goes to the first one

3. The third portfolio is for stocks that will grow and go into the first two

A constant flow of income can be generated when the fixed-income portfolio is diversified into investments with varying maturity. If youre thinking of how much money to put in, carefully evaluate your risk tolerance and needs. This helps you determine how much to save and how much cash should be available.

This is a critical decision, because it can make or break your retirement.

Try to get the most from your fixed investments. The classic approach is to diversify your fixed-income portfolio. Treasury bills and investment-grade Corp-bonds of different maturities are the most commonly used vehicles.

Here are some alternatives:

1. Treasury bills

2. Corporate bonds

3. Real-Estate investment trusts

4. Convertible bonds

5. Municipal bonds

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Bill Consolidation – What You Need To Know.

Bank Savings | Posted by admin
Mar 20 2010

As easy as it is to get into debt, there are a number of strategies for consolidating your bills and lowering your monthly payments while still paying more to principal and becoming debt-free faster than you thought possible.

If youre ready to eliminate your credit card debt, you need to assess your situation and then look at the best alternative for your financial needs. Do you own a home? If you own, do you have equity in your home to tap? Can you afford more than your monthly payments, or are you struggling to get by? Is your number one goal getting out of debt, or is it to meet your monthly payments?

If you own a home, and have equity available, you can look at a debt consolidation loan, or a related solution a home equity line of credit. In this scenario, you are shifting your credit card debt from unsecured to secured debt, which allows you to lower your monthly payment and also lets you deduct the interest payments from your taxes. You may determine that this debt consolidation loan, or second mortgage, can put you on a much faster track to eliminating your debt. Thats because the interest rate on a second mortgage can be much lower than what youre paying toward credit cards or other high interest debt. Trading higher interest debts such as these for a lower interest payment can save you hundreds each month which you can, in turn, put back toward paying off the debt. Last, but certainly not least, the interest you pay on a second mortgage is tax deductible and that savings too can be put toward your bills.

Or perhaps you already have a second mortgage youve been paying on for a while. Especially if you got your first and second mortgages at the same time, it might be time to consolidate them into one loan. Many second mortgages in the last decade carried adjustable interest rates which have increased causing payments to rise. Consolidating your first mortgage and your adjustable rate second mortgage into one low fixed rate loan can also save you a great deal each month which you can use to make payments to higher interest debts.

Two other advantages you may gain through refinancing are the elimination of personal mortgage insurance and the chance to get cash out at closing. When you took out your original mortgage, did your lender require you to carry personal mortgage insurance due to a high loan to value? If so, refinancing may eliminate that requirement. If you have since built up some equity and your new loan to value is low enough to drop the mortgage insurance, your payment amount will be much lower. You may also find that you can take some cash out of your home at closing without significantly increasing your monthly payments. That cash can go toward you guessed it your higher interest debts.

If you dont own a home, or if you own and have no available equity, you can look at debt relief options including debt settlement and credit counseling. If your monthly payment is your number one concern, its worth a try to call your credit card companies and see if a payment plan at a reduced interest rate can be agreed upon. This will allow you to pay more toward your balances each month and eliminate your credit card debt sooner. While your creditors are under no obligation to change the terms of your agreement, they may very well be willing to do so, especially as it is to their advantage to receive payment, and negotiating a payment plan shows that you are taking the initiative to do just that.

If calling your creditors doesnt work, or if you just want a quick fix, you can contact a debt settlement or credit counseling company. Debt settlement is a service for consumers who want out of debt at the lowest cost, in the shortest time frame, with the lowest payment while avoiding bankruptcy. Credit counseling, on the other hand, is a solution that lowers your interest rates slightly and can get you a lower monthly payment.

The path to becoming debt free is as different as the ways you can get into debt in the first place. The first step toward eliminating your debt is educating yourself with all the options available to you. Once youve identified your needs, you can get started taking the right steps for yourself.

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How to Become Motivated to be Frugal

Savings Guidance | Posted by admin
Mar 13 2010

You might really want to save money and be frugal, but just can’t seem to get started. How do you jump start yourself into a frugal life?

Whether you are just starting to be frugal or need a little motivation to keep on saving, sometimes it is hard to keep in focus why you choose to live frugally. I am a firm believer in writing things down. I believe that once you see things in writing, they are a little more concrete in your mind.

Make yourself a frugal living notebook. This is a record of your goals, plans and actions. In the future, you can look back and see how your frugal living has benefited you over time. For example, I can flip back through my notebook right now and see how our financial goals have been met over the last year. It helps motivate me to keep going.

So gather a notebook, a pen and your budget. Your budget will help you choose your goals. If you don’t have a budget, then now is a great time to start one. It can be as simple as a list of the bills that come out of each paycheck. I list each payday on a separate page. Each bill that comes out of that check is written down. When non-monthly bills come in they are placed on the appropriate page. When I pay bills, I cross them off the list. This way, I am sure that every bill is paid each month. Anyone can pick up my book and see what has and hasn’t been paid. I subtract the total bill amount from each paycheck and allot the left overmoney towards savings and spending money. It’s a paycheck by paycheck budget. Since I know approximately how much each paycheck will be, I am able to plan ahead.

In your notebook, make a list of every debt you owe. List what it is, the interest rate, the total amount left and the monthly payment. Every once in a while, you will update this so that you can visually see how your debts are going down over time. It is a good feeling to see how much you are paying off.

Now, define and list your goals. Goals change over time, so be sure to update your list. You will be checking off things you accomplish and adding new goals. Be realistic and honest with yourself. Start small. At one time, my list included “pay off highest interest rate credit card.” Now all my cards are paid off, so my new top goal is to devote 10% of each paycheck to savings.

When you look at your finances, you have to wear blinders. Don’t compare yourself to anyone else. Every financial situation is unique. Just because your friends are driving new cars, you don’t need to go into higher debt to have a new car. You don’t know or want anyone else’s financial situation. Only look at your goals when you are planning how to spend your money.

Be realistic and reasonable. For example, my husband wants a new car so bad he can taste it. But we only owe eleven more payments on our vehicle. It runs perfect and is in great shape. We could go and trade it in and have a car payment of about the same amount on a new vehicle. Or we could wait eleven months, pay it off and then buy another vehicle. Then we would have two nice vehicles with one car payment. It is worth the wait, as most things are financially.

Being frugal doesn’t mean starving yourself. It doesn’t even mean living within your means. It means living life to the fullest while spending only what is necessary. We all are allowed niceties. You may be saying, why would someone who preaches frugal living be talking about a new car? That’s our perk for living frugally — bought sensibly and reasonably. Living frugally gives us the option of having a new vehicle if we choose. It’s about choices. Many of us live frugally when we don’t have choices, so that later in life we will. You have to treat yourself. It may just be a bubble bath or a free walk in the park. Its about spending life to the fullest. You can’t do that burdened by money.

Don’t fret and worry about money. Thinking about it will not change anything. Taking action will. Make a plan, refer to it often and take back your financial freedom.

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How To Avoid Bankruptcy & Get Out Of Debt Faster

Savings Guidance | Posted by admin
Mar 09 2010

How To Avoid Bankruptcy & Get Out Of Debt Faster Using Debt Negotiation!

Has credit card debt got you thinking about bankruptcy?

Youre not the only one these days. Even with the new bankruptcy laws, credit card debt continues to climb. Unfortunately for most of us, our paychecks dont climb as quickly.

If youre on the verge of bankruptcy, you may have another alternative.

Debt negotiation is a process where you negotiate with your creditors to pay off your debts at a reduced amount for example, if you owe $12,000, you can negotiation a payoff of $5,000. The benefit for the creditor is that they get more money than they may have through bankruptcy, and they get the money sooner. The benefit for you is obvious you get out of debt faster, and save lots of money in interest.

Where do you get the money to pay off the debt?

Take the money you would have normally used to pay your credit card bills, put it aside, and when you accumulate enough to pay off the debt, send in the reduced amount you agreed to.

If this sounds confusing, thats ok. Its really not.

There are many professional companies that will do all the work for you, and charge you a percentage of the savings.

I can speak from experience (I built up a lot of debt trying to start a sporting goods business, which didnt quite work out) that even with the fees, this is a good deal plus you save a lot money by not having to pay the high interest rates on your credit card bills.

Sure, it is a more aggressive approach to getting out of debt than making minimum payments, using credit counseling, getting a debt consolidation loan, or borrowing from a friend or relative. But in the end, youll get out of debt faster

And avoid bankruptcy!

If youve never heard of debt negotiation (also called debt settlement), thats ok too, not many people have. I didnt until I began to seriously consider bankruptcy.

One reason many people are hesitant to consider debt negotiation is that it goes on your credit report. Sorry to tell you, but having lots of debt (even if you pay on time), making payments late, even credit counseling all go on your credit report and can negatively effect your credit. And (of course) bankruptcy is a big negative!

In my case, getting out of debt, removing all the financial stress, and being able to live a normal life were well worth it. With so much debt, having good credit was meaningless anyway.

Plus, I was able to get all but one of the negative items off my credit report (thats a topic for another discussion), and my credit is now back to normal. In fact, I now get more credit card offers than I can handle and fortunately, I can now throw them all in the trash!

When money is tight, and debt is high, there arent many simple answers.

But if you are already considering bankruptcy, then debt negotiation might be the right alternative to help you get out of debt faster!

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Basic Financial Information Tips (Part I)

Bank Savings | Posted by admin
Mar 05 2010

Savings. Pay yourself first. Start now stashing 10% of your income in an Emergency savings. Dont use it for anything but real emergencies. Keep a For Sure savings account for yearly expenses you know are coming and you can estimate (e.g. Christmas, insurance, taxes, etc.). Also have a Buy Stuff account. If you do, youll be able to avoid many financial disasters which will face you, and you can avoid borrowing money from high-rate lenders.

Borrowing. Dont borrow money unless you are willing and able to pay it back. Failure to pay debts on time causes severe financial, emotional, and family problems. Experts recommend you dont borrow for wants, only for needs, or for things that increase in value. Many lenders will loan you money you cant afford to pay back, especially high-rate lenders.

Co-signing. Dont co-sign on a loan unless you are willing and able to pay it back. Often, co-signers end up paying off loans they are unprepared for, and financial hardships follow. Numerous co-signors now have negative credit ratings because a primary borrower paid late. Many lenders do not notify the co-signor before reporting delinquencies or repossessions to the credit bureau.

Compare. Before you decide who to borrow from, compare! Find out who is offering the best deal at that time look for the loan with the lowest rate (APR).

APR. The Annual Percentage Rate (APR). It is the standard rate, so we may compare the cost of borrowing. It is the cost of credit expressed as a yearly rate. When you borrow, always beat 13% APR (consider 13 to be unlucky when it comes to borrowing). Some have been illegally stating other rates such as weekly or monthly rates. Compare APR to APR. If you pay your bills on time, and you arent over-extended, you can nearly always find loans or financing arrangements at rates lower than 13%. Beware though, because beating 13% does not always mean you are getting a good deal. For instance: the difference in total interest paid on an 11% versus an 8% 30-year, $100,000 mortgage loan is $64,283 (assuming all payments are made as agreed).

Consolidation Loans. A consolidation loan can result in great savings to borrowers if the new interest rate is significantly lower, and if you dont run-up debt similar to what was just consolidated. But beware, because consolidation loans usually result in substantially more money out of your pocket into the lenders. For instance, mortgage loans usually involve closing costs. They increase the total debt. Many refinances involve reducing the monthly payment, but increasing the length of payback, which substantially increases the total interest paid. Borrowers, who refinance unsecured debt (e.g. credit cards) into a home mortgage, also increase their risk of losing their homes. Also, remember to keep all of your payments current until the old debt is paid off. Too many people have damaged credit ratings, and are in bad financial condition because they counted on money which didnt come when they expected it. Expect delays when applying for loans, especially consolidation loans. Dont spend money before you get it.

Desperation. Dont get desperate for money. The more desperate you are, the less likely you are to get a good loan.

Auto insurance. Keep your auto insurance current. If you fail to keep your insurance up-to-date, you could end up making loan payments for years after your car has been totaled.

Establish good credit. To avoid bad credit, don’t borrow too much, and do pay your bills on time. Inexpensive ways to establish good credit: (1) Obtain a good credit card. When you charge things, pay off the balance each month on time and pay no interest. (2) Establish a revolving line of credit (an empty loan) as an overdraft protection against bounced checks, and dont use it as a loan. (3) Get a loan to buy a car, or furniture, or etc.) and pay it off within a few months.

Late fees. To avoid late fees (which multiply the cost of borrowing), pay early, or at least on time.

Repossessions. To avoid repossessions and associated fees, pay early or on time, and keep your insurance current.

Extra principal less interest. To pay less interest on loans, pay more than the minimum required payment. Even small amounts of extra principal, can significantly reduce the total amount of interest you would otherwise pay over the life of the loan. Before doing this, however, make sure your lender accepts extra principal payments, and find out what particular procedure you need to follow to ensure your extra principal is properly applied.

Bi-weekly payments. If you get paid weekly, or every other week, paying bi-weekly is a very convenient (almost painless) way to reduce your loan term and interest. For instance, if you make of your required monthly payment every 14 days (a bi-weekly period), you pay the equivalent of 13.052 payments in an average year. If you dont get paid bi-weekly, or if your lender doesnt like biweekly payments, you can pay the equivalent amount in monthly installments. If you pay 1/12 of the sum of 13.05 payments each month, you will match the bi-weekly advantage (minor rounding differences).

Contrary to popular belief, the frequency of paying payments bi-weekly doesnt accomplish much, the real advantage is paying the extra principal (13.05 payments, or more, each year) which reduces the term and the interest paid. If you are considering signing up for a bi-weekly program, pay close attention to the cost. Some servicers have large set-up fees and transaction fees. Also consider the credibility of any company handling your money, some have diverted payments into their own pockets, leaving borrowers to make payments twice (once to a corrupt servicer, and a second time directly to the lender).

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How Should You Prepare For Retirement?

Savings Guidance | Posted by admin
Mar 04 2010

The three major elements of your retirement portfolio are benefits from pensions, savings and investments, and Social Security benefits.

To help you plan for retirement, each year we send you your personal Social Security Statement, which gives you an estimate of the monthly benefit amounts you and your family may qualify for now and in the future. If you’ve received your Social Security Statement and have questions about it, visit http://www.socialsecurity.gov/mystatement/.

Once you’ve reviewed your Statement, you may want to explore a variety of retirement scenarios using a range of assumptions about your future earnings or when you stop working. You can do that with our Retirement Planner. The Planner not only tells you how to qualify for Social Security benefits, but it also includes Benefit Calculators that help you calculate your own benefit estimates.

When should you retire?

Generally, you should apply for retirement benefits three months before you want your benefits to begin.

* If you were born before 1938 and you meet all other requirements, you can receive benefits beginning with the first full month you are age 62. However, if you choose to begin receiving benefits before age 65, your benefits will be reduced to account for the longer period over which you’ll be paid.
* If you were born after 1937, you also can start your Social Security benefits as early as age 62, but your full retirement age is more than 65.

Even if you don’t plan to receive benefits right away, or decide to wait until after you reach full retirement age, you still should sign-up for Medicare three months before your 65th birthday.

Choosing the month you start to get benefits is an important decision. If you are not quite ready to retire, but are thinking about doing so in the near future, the Social Security Retirement Planner will help you prepare. If you plan to continue working after you reach age 62, it may be to your advantage to start your retirement benefits before you stop working.

How do you apply for retirement benefits?

You can apply for retirement benefits online, but not for Medicare. To apply for retirement benefits, just connect to the Internet Retirement Insurance Benefits application and follow the instructions. To apply for Medicare, call or visit your local Social Security office.

Or you can make an appointment for your application to be taken over the telephone or in person at a convenient Social Security office.

If you’re deaf or hard of hearing, call our toll-free TTY number, 1-800-325-0778, between 7 AM and 7 PM Monday through Friday.

When you apply for benefits, you’ll need the following:

* Your Social Security number
* Your birth certificate (if you don’t have a birth certificate, you can get one from the State where you were born. See Where to Write for Vital Records for details on where to write)
* Your W-2 forms or self-employment tax return for last year
* Your military discharge papers if you had military service
* Your spouse’s birth certificate and Social Security number if he or she is applying for benefits
* Children’s birth certificates and Social Security numbers, if they’re applying for children’s benefits
* Proof of U.S. citizenship or lawful alien status if you (or a spouse or child applying for benefits) were not born in the U.S.
* The name of your bank and your account number so your benefits can be directly deposited into your account.

Social Security will need original documents or copies certified by the issuing office. You can mail or bring them to a Social Security office. They’ll photocopy and return your documents.

Don’t delay your retirement just because you don’t have all the documents we need–the people in your local Social Security office will help you. Don’t wait until you are 65 to plan for your golden years.

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