Saving Tips

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 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 6, 2011

If I told you a way to save money that was quick, simple and almost always works, would you do it? What if I told you it was negotiating a better price? Is your answer still the same?

Amazingly, most people don’t negotiate. One of the reasons I wrote Money Smart was to give everyone the skills to effectively manage their money. Make it a habit to always ask for a better price. Knowing just the basics about how to negotiate can result in saving money. According to a 2007 Consumer Reports National Research Center study, when people asked for a better price, they received it more than two-thirds of the time. The study also showed that over 70 percent of the time, consumers simply don’t ask.

Everyone can negotiate a better price for cell phone plans, bank account fees, credit card interest rates, furniture, appliances, costs for hotels and airfare, and even doctor bills. All you need are three simple key steps: Asking, Turns (as in taking turns) and Silence.

Ask. Asking is the most powerful tool of all. Always be friendly, but ask for a better price. Take the scenario of calling a credit card company to negotiate a reduced interest rate: Be courteous and simply ask for a better rate. If appropriate, tell the representative that the current rate is more than can be found elsewhere and make receiving a better rate a condition for maintaining your account with their company.

For purchases of items like furniture, ask the sales person for their best price and then tell them you will think about it, and act like you are going to leave. To most salespeople “think about it” is a kiss of death and there’s a good chance they’ll sweeten the deal. If you do actually end the call or leave, you can always come back. Remember, the pressure is usually greater on the sales person than it is on you. You can almost always buy elsewhere, but for them it’s a sale and a commission that will be lost for good.

The next key tool is taking turns. Most negotiation involves taking turns. It is really rather simple, you go, and then I go. This frequently results in the two parties ending up in the middle between their respective starting positions. The trick is to try to get the sales person to go twice. This can often be accomplished by responding to their offer by saying that it’s more than you had hoped to pay and then waiting for them to speak again.

This leads to the third tool – silence. Silence is very powerful. In most negotiations there will be a critical make-or-break moment. Be on the lookout for it and remember that he who speaks first usually loses. In the above example where the sales person and the customer are taking turns, by keeping quiet the customer creates pressure on the sales person to bring the price down, or risk losing the sale.

Negotiating is a must-have financial tool. Making it a habit to always ask for a better price and knowing at least a little bit about basic negotiating can save you a lot of money. Use these 3 simple tools and you will end up saving a lot of money quickly. Negotiate and start saving money today.

by Ted Hunter

December 2, 2010

With the holidays upon us, it can sometimes be tough to remember that this is supposed to be a joyful season. Celebrations can quickly dissolve into chaos, stress, and opportunities to overspend. Here are some tips to help remember the joy of the holidays and avoid overspending.

Money Smart Holiday Tips:

Avoid impulse buying. Start with a list and use the internet for comparison shopping and buying. This will help with making smarter purchases and will lead to fewer trips to the malls and stores where impulse shopping is hardest to avoid. So make a list, stick to it, and minimize those shopping trips.

Buy less and do more. Items we buy quickly lose their appeal and the pleasure we get from them is fleeting. The pleasures of the things we do, however, go on warming our hearts long after the occasion has past. So buy fewer things this holiday season. Instead, invite people over for supper, go ice skating with your kids, or go to a special event with your friends. You’re not only likely to save some money; you’ll probably have a much merrier and more memorable holiday season as well.

Presents are for children. Consider not buying holiday presents for most adults. Talk to the people you’re exchanging gifts with and see if they might prefer to stop as well. Most adults will be happy to end the obligation or agree to a gift limit of $10 or so. After all, what percent of the gifts you’ve ever gotten have you actually wanted and used?

Think before sending Christmas cards. Only send cards with a personal message to each person. While most people just fire them out, it’s not very personal, is it? Simplify life and save money by sending an e-card for free instead (do it for birthdays, too).

Start your own holiday fund. Save ahead of time. It’s important to save for gifts, and especially the holidays, so there is money to cover the expenses when the time comes. Consider the gifts and expenses for each present-giving event in a year, add them up, and divide by twelve to know the monthly cost. This is the amount to put aside each month to be prepared and avoid stress.

The holidays are a supposed to be a celebration with family and friends; going into debt doesn’t have to be a foregone conclusion. Be Money Smart and don’t stress, enjoy the season without regret.

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