Ted Hunter

February 27, 2011

Everyone wants to be both debt-free and financially secure, but how do you prioritize the two? Is it best to hold-off with aggressive saving until you are debt-free? Or is having a savings cushion more important than getting rid of debt? It’s critical to pay down your debt, but it’s critical to create a plan that will build your bank accounts as well. To be smart about accomplishing both goals, you need to carefully prioritize your saving and debt-reduction efforts. Unless you have a very good reason not to, I recommend that you adhere to the following priority sequence:

1. Stop using credit cards and pay only the minimum payments until step four is reached.

2. Aggressively save for an emergency fund starting with at least one month’s expenses. This will create a cash cushion for emergencies rather than needing to pull out the credit card.

3. If an employer will match contributions to the company 401(k) plan, save the amount necessary to get the full matching dollars.

4. Allocate 50% of savings to an emergency fund, and 50% to debt reduction until four to six months’ of living expenses are covered in the emergency fund; four months for a two-income family, six months for one income.

5. Now focus on eliminating all debt except for home and car loans.

6. Build up annual savings until the maximum tax-deferred savings allowed by IRS guidelines is reached. Once you reach this point and are saving as much as you can pre-tax, throw a party and reward yourself with something very special. You’ve earned it!

7. Pay off any car loans, then start saving $250 a month in a new car fund.

8. Increase saving to at least 15% of pre-tax income. Save for home ownership If not currently in a home. Homeowners should also accelerate mortgage payments and continue until it is paid off. Also, during times when fixed-interest rates such as CDs have fallen below 3.5%, be aware that making extra mortgage payments provide a better after-tax return on your money.

9. Families with children might want to start a specific education fund based on the child’s abilities, needs and desires. (Please read “Paying for an Education” in chapter eight of Money Smart to see if this is something you should do.)

Small monthly changes can have a huge impact on savings and debt reduction, especially when you follow the right sequence. Be smart in setting your priorities and your Spending and Saving Plan will put you on the path to financial freedom in no time

by Ted Hunter

February 20, 2011

It is certainly possible that a four-year academic education can offer a better life through superior jobs, more money, and a life-enriching experience. But is it necessary? Is it worth the crippling debt-loads parents and students must often take on these days in order to get it? Most importantly, is it the best route to a successful and happy life for your kid? Many parents automatically assume that their children should go to college. Yet college dropout rates in this country are nothing short of disastrous, and that doesn’t begin to count all of the students who end up graduating even though they should never have gone in the first place.

A college education is no longer the end-all-be-all of education, nor is it a guarantee of success. There is no end to the number of careers and self-employment opportunities that do not require such an education and that can provide both a very good income and a very satisfying life. Obviously some fields require the standard academic route. If you want to be a doctor, lawyer, scientist, engineer, teacher, or architect, for example, it’s the only way to go. However, in my experience, many employers now value the skill set more than the proven ability to be taught. They no longer have the time or the money to invest in teaching the skills they need. They want people who will be productive the minute they walk through the door.

These skills can be acquired in more places than in a four-year academic institution. It may mean a two-year degree, an online degree or certification, trade or technical schooling, real-world work experience, or any combination of these. These alternatives may end up costing a lot less than a regular four-year college education and also provide a better entrance to the work force. Maybe the best path for your kid is to start his or her own small business. Although challenging, small business ownership is historically one of the most rewarding routes to both financial and personal success.

It so happens that the subject of whether or not to send a child to college is one I faced personally. My youngest son, Dan, is extremely bright and was designing video games in high school thirty years ago, back when they essentially didn’t even exist yet. His mother and I thought that he should go to college. Well Dan didn’t exactly see it that way. His college experience lasted a grand total of about two weeks, after which he pretty much cut every class, flunked out royally, and never went back. Dan knew college wasn’t for him and it was his life and his future and he wasn’t going back.

Don’t feel sorry for Dan. He went on to become one of what the techies call the “Masters of the Universe,” and is currently the “Architect” of a cutting-edge startup cloud software firm. Every time you use the Internet, or even your cell phone, Dan has probably been there somewhere. For Dan, the non-college route was his path to a very successful career. Best of all, he loves what he does.

In telling you this story I am by no means suggesting that your kid follow Dan’s path. Each person is unique, as should be his or her path in life. Is college necessary? It shouldn’t be an automatic yes, what it should be is a discussion between you and your child to try and find the right answer.

by Ted Hunter

February 8, 2011

Insurance. It seems like there is an insurance policy for everything these days. Although it is important to have insurance for your family’s future, many of the available policies are a waste of money. Here are 10 of the most common offers you will encounter and should try to avoid.

Life insurance for children– The purpose of life insurance is to cover the living expenses of the people who depend on you should you die. Unless you have a major child star on your hands, nobody is depending on their children for income. Millions of these policies are in existence. The people who sold them should be ashamed of themselves.

Warranty insurance and maintenance policies or programs– These policies cover repairs that are not covered by the warranty that comes with the product. The odds are in your favor if you opt to skip the insurance and just cover the expense should it arise.

Mortgage protection life insurance– The idea behind these policies is that your home will be fully paid off should you die. If you think about it this is really no different than life insurance, the only difference being that the premium will be a lot higher, sometimes by as much as 200% more. If you feel you want this type of coverage, increase the size of your term-life policy. It’s a lot cheaper way to go and offers more flexibility for your family to use the money should something happen to you.

Credit card theft insurance– Federal law limits consumer credit card liability for unauthorized charges to $50. These types of insurance are normally pure scams. The FTC (Federal Trade Commission) singles out credit card theft insurance as the biggest type of scam out there today. But there is a loophole. The $50 liability limit does not include debit cards (nor does credit card theft insurance). Most financial institutions also cover you on your debit cards but, to be sure, call and find out. If they do not cover you, move your money to an institution that does.

Identity theft insurance– For the most part, these plans do not reimburse you for the money you lost, just for the expenses incurred if your identity is stolen, such as phone calls, copying fees, and lost wages. By and large they probably aren’t worth it.

Credit life insurance/credit card balance insurance– These policies pay off your credit debt if you die. This is that same situation where the premiums are ridiculously high compared to term-life insurance rates. This is another attempt to play on your emotions or take advantage of your good will toward your family.

Trip insurance– Such insurance reimburses you should you be forced to cancel a planned trip, etc. This is almost surely a losing proposition. Insure this risk yourself by being willing to cover any amount(s) that might be lost.

Flight insurance– This is extra life insurance in case you’re killed in a plane crash. Do you have any idea how few people are killed in the world this way each year versus the number of passenger trips taken? This is a terrible deal. Pass on it.

Travel life insurance– Travel life insurance pays you should you die while traveling. It preys on people’s fears and is just one more bad deal. If you need life insurance, you should already have the appropriate policy in place. Betting that if you die during your trip your family can get more money is a bad bet, given the rates involved. Also, you’d be surprised at the loopholes in these deals regarding how much you’ll get and whether you’ll even get paid at all.

Wedding insurance– This covers the added cost that might occur should the wedding be postponed due to illness on the part of the bride or groom, missing vendors, damage to the reception site should the place not have its own insurance, etc. Once again, the insurance company will have done its homework. What is covered, and the rates charged, makes it a winner for the company, not you, even given all of the marketing and selling expenses the insurer pays out. By the way, these policies do not pay off if either the bride or the groom changes her or his mind.

Insurance is important, but be money smart and don’t waste your hard earned money on these expensive and ultimately useless policies.

by Ted Hunter

January 31, 2011

For many American’s debt seems like a way of life. For over fifty years the relentless message that debt is “normal” and “acceptable” has brainwashed the public to believe that to achieve the American Dream it’s okay to go into debt. Nothing could be further from the truth. These have been tough times for many hard-working Americans who still unfortunately believe they must borrow to live. But let me be clear, you absolutely must live within your means to succeed financially and to insure a good quality of life –there is just no way around it.

Most who have a debt problem falsely believe that something will happen in the future to solve it and all will be well. A common assumption is that income will grow faster than spending, but that is very seldom the case. Even those that end up making more are by then usually well conditioned to just keep spending more, and end up going deeper into debt.

Debt reduction and eventual debt elimination are very achievable goals. My debt elimination plan has three key elements: attitude, action, and persistence. Of course it can feel overwhelming to start a debt reduction plan, but once a plan is in place and early efforts begin to turn out results, momentum and the feeling of success build. Not only will debt be eliminated; the money that is saved will reduce stress, increase enjoyment of daily life and create financial stability. When does debt elimination begin? Today! Start today with these steps:

Openly admit you have a serious problem, one that you must solve.
Every member of the household must agree to reduce spending until your family has solved this problem for good.
Immediately stop all borrowing! Do not borrow any more money for any reason other than for a true emergency, such as a job loss or large unexpected medical bills. Not one penny, not for any reason. The minute you stop taking on new debt you are absolutely on your way.
Cut up every credit card and every department store charge card. No exceptions! Use only a debit Visa or MasterCard tied to your checking account for your non-cash purchases. For your cash purchases, take a pre-set amount of money from the bank every week or every two weeks.
Make no new purchases of significance until your debt is eliminated.
Write down every single expenditure, every day for thirty days. It only takes two or three minutes a day and the results can be quite amazing. Well before the month is up, your mistakes, problems, and most importantly, the solutions, should start becoming clear.
Buy and read Money Smart. You will learn a lot that will help you, especially when it comes to the Rules of Money, the Rules of Spending Wisely, and of Investing Successfully. Once you stop breaking the rules of money and start spending wisely you will find that the results can be nothing short of amazing.
Have a written Spending and Saving Plan that you follow and update monthly. Money Smart walks you through this process step by step with advice along the way.
If you’re still not making enough progress, go back to writing down every single expenditure, every day and stop using your debit card. Make cash envelopes for each spending category on your spending and saving plan and start doing all your spending in cash.
Understand that you almost certainly make enough money. The only true exceptions to this are things like loss of your job, being hit with huge medical bills, or having a large family depending on you, and you are the only breadwinner. If your income is not enough to cover your lifestyle, adjust your lifestyle.
If you need to repair your credit and feel you cannot work things out on your own, contact the National Foundation for Credit Counseling (NFCC) at www.nfcc.org. The charges involved will be very modest and fair and they will work with you regardless of the level of debt involved.

Getting out of debt is a very achievable goal. Over a million people do it every year, and this is the moment to add your name to the list. Eliminating a sizeable amount of debt takes time and discipline but whatever temporary sacrifices you make will be well worth it for a better tomorrow.

by Ted Hunter

January 26, 2011

What does a casino do? How does it operate? The key to its profitability is to ensure that enough money comes in the door, stays to play, the odds are hidden, and that the house gets a small percentage of the money in play, whether the patrons win or lose.

Now let’s look at Wall Street. Think it’s different? Well look at how that system is built and operates. To be profitable, Wall Street must convince people that:

Money management is very complicated. “Let us experts handle your money. We can do it better than you”, say Wall Street insiders. (Get money in the door.)
The stock market is the answer when it comes to retirement and financial freedom. (Essential to keeping money coming in the door.)
The only way to invest successfully is to invest for the long run. (Make sure the money stays to play.)
Wall Street experts know what they’re doing. (Complete investment track records are never shared = keep your odds hidden.)
Pay us a small percent of the money invested. (The house always wins, even if the client loses.)

Sure sounds like a casino to me. And every one of these Wall Street assertions is absolutely untrue! They are myths, spun for decades, for the sole purpose of enriching Wall Street’s financial services industry and its supporters.

Unfortunately, it’s been far too easy for consumers to buy into these myths. Starting in the mid-80s, the globalization of the economy, the dot com explosion, and 401(k) accounts going from non-existent to over 70 million accounts, all combined to fuel the greatest stock market boom in history. The industry known as “Wall Street”, and the vast majority of the financial “experts” associated with it– the stockbroker’s financial advisors, financial media people, et al—never understood that the boom was just a moment in time, one peak in the endless cycles that markets always go through. In confusion, experts mistook being in the right place at the right time with actually knowing what they were doing. For them, it really didn’t matter. By then they had created their Wall Street system.

As a Wall Street insider all though the 90′s, I witnessed this first hand. In December of ’99, I told all my clients that the stock market had become terribly overpriced and that I was selling my business and most of my own stock holdings. I advised everyone to get out of the stock market because there wasn’t any money to be made there for a long time to come. The Dow and S&P were over 150% overpriced. It was a no-brainer, and yet with rare exception, the expert stockbrokers, financial advisors, and the stars of the financial media did just the opposite, telling consumers to keep right on buying stock and to always invest for the long run.

After I left, I continued to look on in frustration as the futures of millions of hardworking Americans were in the process of being destroyed. Watching as the “experts” failed warn people not to buy a home during the worst overpricing in history, and watching millions of families lose their homes, and watching as it became clear that tens of millions of baby boomers would not be able to retire, that’s when I decided to do something about it.

I understand money. I learned what I know the hard way from over 60 years of real world trial and error, and I realized I could explain successful personal money management to anyone who cared to listen. It didn’t matter what they did or didn’t know, whether they were a PhD in economics or a high school dropout. Smart money management is something that absolutely everyone can do, provided it’s explained properly. Unfortunately, this hasn’t happened, at least not on any significant scale. So, I decided to provide the information that is needed by writing Money Smart: How to Spend, Save, Eliminate Debt, and Achieve Financial Freedom and creating a supporting website, www.MoneySmartOnline.com.

Money Smart starts by making it clear that you–and only you– must manage your money, then goes on to show you exactly how to do it–how to spend, save, invest, and achieve financial freedom. What you’ll find is that there really is a better approach to personal money management, an approach that works.

The bottom line is that it’s your money. Don’t be gamed by the old financial system. Learn what you need to know, and be in control of your finances from now on.

by Ted Hunter

January 21, 2011

So I was reading some of the endless spin put out by the financial services industry, in this case a NY Times article that I encountered three months ago, and then saw reposted by Yahoo Finance’s Advisor’s Corner on January 5, 2011 called “3 Schools of Thought on Wealth Management“. The financial services industry is scrambling for a new way to package their message to get a hold of your money, but the last thing you need right now is a new sales pitch. What you need is performance and results. The article breaks down the new approach to client management. It says, “In this climate, advisers face a challenge, and, once again, they have had to develop new ways of presenting their services. Speaking broadly, three approaches seem to have emerged”.

And what are those three approaches by which the industry seeks to re-invent itself, in response to its failure?

The “Caring Approach” (meaning to hold the client’s hand)
The “Technical Approach” ( meaning unclear, but perhaps to allocate well and charge smaller fees)
The “Retirement Focused” approach (meaning to fall back on the standard advice of always invest for the long run with its implied promise that it will all work out in the end, because of course this fairy tale must have a happy ending)

It’s a long article that drones on and on, but fails to address what matters most – performance and results! Yet this is the primary reason people hire a financial pro – to grow their money better than they can grow it themselves.

Sadly, the industry track record on their ability to grow their client’s money is incredibly clear at this point. They do not know how to do it, and based on this article and many more like it, they sure don’t want to talk about their track record. After all, why should they? The financial services industry is setup to insure that they always make money, whether or not their clients do. So, now they are focusing on reinventing their approach, without actually changing their performance and so long as they can continue to pull that off, they won’t need to.

While performance in not relevant to the industry, it sure is to the people who have trusted the industry with their hard-earned dollars. In 2000-2001, and again in 2008 when the stock market was terribly overpriced, most of the so-called financial experts continued to repeat their standard advice: “Keep on investing. Invest for the long run”. They urged their clients to keep buying those crazily overpriced stocks.

Well, the game is beginning to change. The industry’s failure to perform has cost Americans a fortune and now people are beginning to look at the practices of the financial services industry with a critical eye. Check out the comments posted below the article I described. There were lots of them and they were scathing. People are starting to see the truth and demand better and that’s exactly what Money Smart was created for: To share a better approach to personal finance and investing, an approach that has been proven to work.

Newer Posts

Older Posts

Save Money AND Eliminate Debt? Yes, If You Know How to Prioritize

Is College Really Necessary?

10 Insurance Rip-Offs to Avoid

Is This the Year? Eliminate Debt Once and For All

The Wall Street Casino

The New Approach is the Old Approach, What Financial Advisors are Really Selling You