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Debunking The 25 Most Outrageous Money Myths (part 4 of 4)

hank — Tue, 16 Sep 2008 08:36:27 +0000

In continuing the series on debunking these most popular and 12+ pages being too much for one post – here is part 4 of 4 on the series Debunking The 25 Most Outrageous Money Myths. Part 1 can be found HERE. Part 2 can be found HERE. Part 3 can be found HERE.

19. Money Corrupts People

Very similar to #1 of it being “the root of all evil”. Money itself isn’t the corrupter. Think of how many good things have happened in this world with money. How many charities, art pieces, hospitals, parks, etc have been made with this “corruptive money”.Yes, there are people that will use the money in corrupt ways, but the money itself isn’t the enemy. You’re trying to walk again on the higher moral ground than those with the money.

20. My Best Investment Is My House

First off, if you paid the full amount for your house and plan to live in it for 20 years, it may be a good investment, but if you’re like the 99% of the world that can’t do that, it’s hard to justify it being a good investment when you’ll likely pay at least double that amount over the life of your 30-year loan.Additionally like all other investments, home ownership involves the risk that your investment may decrease in value. While commonly cited statistics say that housing appreciates at somewhere between the rate of inflation and 5% per year, if not more, not all housing will appreciate at this rate.In fact, it is perfectly possible for your home to lose value over the years, meaning that if you want to sell, you’ll have to take a hit. The only way you’ll avoid realizing a loss in such a situation is if you continue to own the home until you die and pass it on to your heirs.

21. I’ll Save Money When I Have Enough

When is enough enough? This can work if you set a number and stick to it. Say you’re going to start saving when you make $1500 a month, and stick to it. That could work. But I’d recommend sticking in as much as you can up to and through that amount with a percentage of your money instead of a dollar amount.Any amount of money you save, no matter how small, is enough to save. The habit of saving money is more important than the amount.

22. I’ll Never Get Rich In This Down Economy

“There’s more than one way to skin a cat.” SOMEONE is making money when the rest of the world is not. Money doesn’t just evaporate; it’s going somewhere. You just need to find where that is. During a recession, good sectors to put your money are in places that people have necessity: medical, food, and energy are resources that people can’t live without, even in a down economy.The key is to understand that there’s always an investment that’s good right now. When stocks go down, bonds go up. When interest rates fall, stocks go up and homes get cheap. If the economy is ‘bad’, that means it’s time to sell your bonds at a profit and buy stocks at a discount.

23. If I Carry A Balance On My Credit Card I Will Improve My Credit Rating

All your improving by doing this is the amount of money the credit card company is making off you. Your credit gets better by proving you’re a good borrower and pay it off each month.If you want to take it a step further, don’t charge more than a 35% of your card’s limit because the amount of available credit you’ve used is another component of your credit score.

24. Money Is A Big Responsibility

Well, yes it is, are you saying that you’re not responsible enough to have money? Even the most irresponsible of the wealthy can keep it flowing. It’s not about responsibility, it’s about your mindset to think you can never attain wealth and this is your excuse for it.If you think of money as a burden, it will become burdensome to you. Even if you do somehow to become wealthy with this mindset, you’ll end up letting it work you into penny-pinching with it rather than finding ways for it to maintain itself and grow to a bigger pot.Obviously, money doesn’t have to be a burden, quite the opposite. It can help you lift burdens that were created before it. if your money works for you, it can lighten your burdens. This myth is a powerful and self-fulfilling thing.

25. Renting Is Throwing Your Money Away

It is a mindset that has been captured a handful of times across the blogosphere (1, 2, 3, 4, 5, 6) and no solid reasoning has been found for it during that time. It’s got 2 sides to the coin:Do you consider the money you spend on food to be money that is “thrown away”? What about the money you spend on gas? Electricity? Toilet paper? All of these are things you’d normally buy and just throw away when you’re done with them and get no lasting value from them, right? Well, consider dumping rent money in that same category.Even if you own a home, you still have to “throw away” money on expenses like property taxes and mortgage interest (and likely more than you were throwing away in rent). In fact, for the first five years, you are basically paying all interest on your mortgage. For example, on a 30-year, $250,000 mortgage at 7% interest, your first 60 payments would total about $100,000. Of that you “throw away” about $85,000 on interest payments.

Conclusions

A lot of money myths have to do with “mindsets” and “sayings” that have been passed down over the years from your parents and your parents parents and so on. Right alongside them are the tendencies of people and their actions around money.Yes, everyone has been stung by a bad investment, a sour financial transaction, or a seedy person trying to get their hands on your money. But the key is to not let that dictate how the rest of your life is going to be when dealing with money. It is an experience that you’ve had and you’d be better of to learn from it than you would be to dwell on it. Part 1 can be found HERE. Part 2 can be found HERE. Part 3 can be found HERE.photos by: digidreamgrafix.com, ??103, Per Ola Wiberg (former ponanwi and Powi), Elfboy, mckaysavage,Ravenelle, saschapohflepp,

Debunking The 25 Most Outrageous Money Myths (part 3 of 4)

hank — Fri, 12 Sep 2008 08:36:26 +0000

In continuing the series on debunking these most popular and 12+ pages being too much for one post – here is part 3 of 4 on the series Debunking The 25 Most Outrageous Money Myths. Part 1 can be found HERE. Part 2 can be found HERE.

13. Savings Accounts Save Money

Having money in a high yield savings account or MMA for emergencies is a good idea. But if you are looking to save money or make your money work for you, a savings account isn’t likely going to get there for you.
First, you have to look at what you are paying out in interest rates. For example, if you have a student loan with a 5% interest rate and a savings account making 3% interest rate, your savings are costing you approximately 2%. You would be better off paying off that student loan with your savings account.

It goes the other way around too. If your debt has less of an interest rate than your savings, your money is working better in the savings. But with today’s interest rates being so low, your debt is probably higher than the amount of interest you are earning on your savings account. That means you are actually losing money.

14. The Stock Market Is Dropping With My Money, So I Am Selling!

I wrote a whole post on this exact phrase HERE, but to rehash a bit…

When the stock market goes down, keep your money in it unless you’re right at the brink of retirement. The market goes up and down, that’s just what it does. Know your tolerance. Many seasoned investors consider a decline in the market to be a “sale” and take advantage of the opportunity to pick up some valuable investments that are only experiencing a temporary dip.

15. I’m Too Young To Invest, I Have Plenty Of Time To Worry About Retirement Later

The younger you are, the more years of compound interest you have ahead of you. Compound interest is your best friend, trust me.

When you start saving young, you’ve got a long time to let that money sit and simmer. Even if it is just a few bucks a paycheck, you’re getting in the habit of saving, which is nearly as important.

It’s true that some brokerage firms require you to have a minimum amount of money to invest in certain funds or even to open an account. However, if you wait until you meet one of these minimums, you may get frustrated and have a harder time reaching your goal.

These days, it’s easy to start investing with very little money thanks to the proliferation of online savings accounts.

While traditional bank savings accounts generally offer interest rates so low that you’ll barely notice the interest you accrue, an online savings account will offer a more competitive rate based on how the market is currently doing. In 2007, it was common to find online banks offering 5% interest. 5% is a pretty good return on your low-risk savings account investment when you consider that stocks historically return an average of 9-10% annually.

Also, some online savings accounts can be opened with as little as $1. Once you’re in a position to start investing in stocks and mutual funds, you can transfer a chunk of change out of your online savings account and into your new brokerage account.

Alternately, you could open a brokerage account with minimal funds through one of the online trading companies that have cropped up.

However, this may not be the best way to start investing because of the fees you’ll pay each time you purchase or redeem shares (generally $5 – $15 per trade). While these fees have been drastically reduced from when you had to trade through human stockbroker, they can still eat into your returns.

16. I’m Not Going To Credit Counseling, It Is Bad On My Credit That I’m Trying To Save!

The current FICO formula ignores any reference to credit counseling that may be in your file. That’s been true for the last three years, after researchers at Fair, Isaac, the company that created the FICO scoring system, noticed that people getting credit counseling didn’t default on their debts any more often than anyone else.

However, your ability to get a loan could still be hurt by credit counseling. Your current lenders may report you as late, because you’re not paying what you originally owed or because your credit counselor isn’t sending your payments in on time. Late payments do hurt your credit score.

Lenders consider other factors besides credit scores in making their decisions, as well. The factors they look at can vary widely. Most want to know your income, for example. Some want to know how much savings you have or whether you’re a homeowner. Some will find credit counseling disturbing, while others see it as a good sign.

If you plan to get a mortgage soon, and you’re not already behind on your debts, it’s probably smart to steer clear of credit counseling. If you’re already in trouble, however, a good credit counseling agency might be able to help you get back on track.

17. The Only Way To Get Rich Is To Catch A Break

Again a generalism of the entire population. Yes, some people get lucky when they strike it rich, and some are giving money through rich relatives (but most of them STAY rich, even when they’re not financially savvy because you can BUY people to watch your money if you have enough of it) but that’s not the case with the remaining 80% of the people that become wealthy.

For the 80% that earn wealth, it’s not an accident, it’s dedication and belief that you’re going to be successful. If you just sit around thinking that your only way to wealth is to “catch a break” at work, you’re most certainly not likely to get that break.

Most of the rich never made it rich at their ho-hum corporate job. They ventured outside of it to find what would make them wealthy. Reach out and investigate other ways to get rich, you may be surprised that you may be able to make your own “break”.

18. If I Refinance My Mortgage, I’m Saving Money

Well, yes, you are initially, but essentially what you’re doing is you’ve refinanced for another 30-year term. This means that if you have already paid 10 years of mortgage, then refinance for another 30, you have basically extended your loan to a 40-year mortgage. Do the math and you’ll see if you are really saving anything.

If you really want to save money, refinance for a lower rate and a shorter term. Your monthly payment may not go down, but your overall repayment may.

Continuation

Stay tuned tomorrow for the remainder of the Debunking The 25 Most Outrageous Money Myths series! Part 1 can be found HERE. Part 2 can be found HERE. Part 3 can be found HERE.

photos by: digidreamgrafix.com, ??103, Per Ola Wiberg (former ponanwi and Powi), Elfboy, mckaysavage, Ravenelle, saschapohflepp,

Debunking The 25 Most Outrageous Money Myths (part 2 of 4)

hank — Wed, 10 Sep 2008 08:36:25 +0000

In continuing the series on debunking these most popular and 12+ pages being too much for one post – here is part 2 of 4 on the series Debunking The 25 Most Outrageous Money Myths. Part 1 can be read HERE.

7. Closing Your Old Accounts Will Help Your Credit Score

Nope. Closing accounts can never help your credit score, but can possibly hurt it. My mortgage lender actually told me to “trim down to 3 or 4 accounts” when I was in the market for my first house. Although it is a true statement that too many open accounts hurts your score, but that, in itself, is what hurts it. The damage has been done when you opened it.The credit score looks at the difference between your available credit and what you’re using. Shut down accounts, and your total available credit shrinks, making your balances larger than what your limit is set to, which hurts your score.The score also tracks the length of your credit history. Shutting older accounts can also make your credit history look younger than it actually is, which can hurt your score.But if your goal is to improve your credit score, you generally shouldn’t close accounts in advance of such a request. Instead, pay down your credit card debt. That’s something that actually can improve your score.

8. I Bought My Mortgage With Zero Down So I Could Write Off The Interest, Which Is Advantageous

I don’t know if “advantageous” is the word I’d look for. I don’ see the advantage in paying thousands of dollars in interest each year. Interest tax deductions should always be considered when filing your taxes and calculating whether you can afford the mortgage payments, but they should not be considered a reason to buy a home.I can see the advantage if you’re selling a previous home and pocketing that cash or putting it towards other debts (car, credit cards, loans, etc) that carry a higher interest rate than what you’d get a house for, but again, there are always loopholes in everything.

9. I Don’t Have Enough Money To Start Investing

I don’t buy this one. I find this one comes in a lot when people are looking for excuses that they don’t have a good paying salary. They want you to feel sorry for them that they have a low-paying gig and further proof in their lack of ability to put anything to savings.This can be argued semantically as well. How much is “enough”? Well, if you cut it to the most basic, it’s $0.02 since the smallest currency is a penny. So if you’re making $0.02, you can invest half of it. Whether you want to is another thing.The second part of the semantics is the word “investing”. You don’t have to put your money in a stock to have it be considered “investing”. Put it in a high yield savings or MMA account. That’s investing as well.Thirdly is that people just don’t think small amounts matter in investing. So that extra $40 at the end of the month left won’t be worth putting into an investment. WRONG! It is. Think of that $40 for 12 months. Then think of that 12 months for 30 years.Just putting that away is giving you $14,000. Now put that to work with a very modest 5% growth and you’ve made yourself a pretty penny turning in over 100% more than you put into it (click the chart to enlarge).So yes, you DO have enough money to start investing. Even if it is just a few cents, seeing that amount grow will get you in a mindset of saving. That money will eventually add up – maybe not in the near term, but program yourself to thinking to the future, which leads to the next myth…

10. I’m Too Old To Worry About Saving Now – It Is Too Late.

So you’re old, get over it. That doesn’t mean you should just throw in the towel! You’ll still be able to build SOME nest egg if you start now. Granted, it won’t be the same as someone firing it up right out of school, but you may live to be 100 – you never know! Starting at 55 gives you another 45 years of investing ahead of you if you’re going to push the triple digits in age.Furthermore, age can be an advantage in the ROTH IRA game. The 2008 limit for IRAs is $5,000. If you’re 50 or older on 2008, it’s $6,000. So every year after 50 gives you a $1,000 bonus. I highly recommend it.Don’t look at it as a hindrance, look at it as a challenge to kick it up in just 1 year, then 2, 3, etc. Get in the mindset of saving it and it’ll be much easier to overcome the idea.

11. Checking Your FICO Score Hurts Your Credit

Nope. The actual act of inquiring doesn’t hurt it if you’re doing it once a year from annualcreditreport.com. Applying for new credit is what hurts your score. The credit card folks that send you 50 snailmails per day trying to get you to sign up with their card hits your score. Shredding them will help your score more than filling them out and applying for them.Your score fluctuates between 300 and 850 – when your credit is run by a credit card agency or lender it usually knocks off about 5 points, which won’t end the world, but if you’re on the brink of one echelon or the next for their offer, it’s best to keep the inquiries down and only use them when you plan on buying something.When you’re searching for a mortgage remember that FICO treats multiple inquiries in a 45-day period as just one inquiry and ignores all inquiries made within 30 days prior to the day the score is computed. So if you’re gonna hit it, hit it in that timeframe.

12. The Rich Are Getting Richer, And The Poor Are Getting Poorer

TheDigeratiLife sums it up very well in 3 statements why the rich get richer:The rich have started successful businesses.The rich get tax breaks.The rich are paid higher and higher salaries while regular people don’t.While I agree with the statements, I think a big point is that the rich know how to make MORE money because money begets money. If you have it and know how to use it, it can really pay off for you. So there is no lie to the statement of the “rich get richer” – they should if nothing more than evolution. They’re getting richer because they’re learning how and teaching their kids how to do it also.But that doesn’t cover the 2nd half of the statement “the poor are getting poorer”. Professor Sala-i-Martin wrote a p
aper titled “The Disturbing `Rise’ of Global Income Inequality.” In it he estimates the worldwide distribution of income by individuals rather than countries. The results are striking.In 1970, global income distribution peaked at about $1,000 in today’s dollars, a common measure of poverty ($2 a day in 1985 dollars). In 1998, by contrast, the largest number of people earned about $8,000 — a standard of living equivalent to Portugal’s.”That’s what I call a new world middle class,” says Professor Sala-i-Martin. It is mostly made up of the top 40 percent of Chinese and Indians, and the effect of their economic rise is big.What about the argument that income gaps are widening within these rapidly advancing countries? With a few exceptions, it is true, but still misleading.The rich did get richer faster than the poor did. But for the most part the poor did not get poorer. They got richer, too. In exchange for significantly rising living standards, a little more internal inequality is not such a bad thing.”One would like to think that it is unambiguously good that more than a third of the poorest citizens see their incomes grow and converge to the levels enjoyed by the richest people in the world,” writes Professor Sala-i-Martin. “And if our indexes say that inequality rises, then rising inequality must be good, and we should not worry about it!”

Continuation

Stay tuned tomorrow for the remainder of the Debunking The 25 Most Outrageous Money Myths series! Part 1 can be found HERE. Part 2 can be found HERE.photos by: digidreamgrafix.com, ??103, Per Ola Wiberg (former ponanwi and Powi), Elfboy, mckaysavage, Ravenelle, saschapohflepp,

Debunking The 25 Most Outrageous Money Myths (part 1 of 4)

hank — Mon, 08 Sep 2008 08:01:16 +0000

I thought I’d take WriterDad’s advice in cooking this one up thinking that [My] Baby’s Born in the Rough Draft. You raise it in the Rewrite“. I’ve been working on this post for cumulatively about a month. A change here, a new post here, realization here, but I’m done. I could come up with 2,380 myths to only find another 13 in that search, so that’s it, I’m done with it and hope it rings a few bells for a few folks…Let’s start off on the philosophical myths and get down to the real “roots” of money…

1. Money Is The Root Of All Evil

No it’s not. You can say that for anything. I think that bad attitudes are the root of all evil; or evil thoughts are the root of all evil. I can go on, but I’ve got a long list to go through.Diving in to this one a bit more though, and taking a philosophical approach to why people say it – You get to put yourself on the higher moral pedestal than the people with the money by taking a shorter cut and you’ll look for evil when money is referenced. Money does bait people to do bad things, but it’s not the money that is doing it, I think it is the person offering the money that is “the root”.I can vouche I’ve wanted more money before and blamed those that actually had it, but who am I trying to convince? Ultimately with a little introspection, just myself it appears.Sign me up for more money, I’ll take on the challenge of proving it is not the root of all evil.

2. Money Can’t Buy Happiness

Can’t it? Really? Again this is similar to the statement above and can get into a philosophical or semantic debate over what it means.Certainly it can’t “buy” an emotion. But it can buy things that lead to an emotion. The same way that having no money leads to unhappiness. The lack of money didn’t make you unhappy, the lack of emotions money can provide contributes to your unhappiness.

3. If I Became Rich, My Friends Will Be Resentful Of My Success

Seriously? If that’s the only reason you’re not trying to get ahead in life, you might find benefit in re-evaluating your priorities. If your friend resents you for your successes, they may not be your friend after all. You may feel the need to be better than them at some financial aspect and it’s not abnormal to want that, but to actually resent you is not “friendly”.

4. You Get What You Pay For

So to get on my soapbox a little, just because a product is higher-priced does NOT always mean it is higher quality. Take a stock for example, just because Microsoft stock falls a few bucks over a time doesn’t mean that it is any worse company. If you bought it at $20 and it dropped to $10 and then shot up to $40 dollars, how do you determine that “you got what you paid for”?Take generic drugs for another example. I really don’t know anyone that goes with the name brand stuff anymore. Thousands of people (and myself included) can validate that they do the same thing. The big name companies aren’t targeting the bargain shopper though in their sales, they’re targeting this myth that people still hold on to.How about beer? It’s completely left up to the taster. I can’t stand Guiness, but I have several friends that won’t drink anything else. I’m a Bud man myself. I think it’s delicious and think the $7.99 I pay for a case is well worth it and paying MORE for the 12 pack of Guiness costing me $15. I would say I’m NOT getting my moneys worth in that situation.As a final example, how about a website you regularly visit? If you’re visiting it regularly, you must be getting something out of it. “Something” isn’t “nothing” and “something” is more than the $0 you’re paying to view the info it provides.

5. If I Get Just a Small Raise, I’ll Move To A Higher Tax Bracket, Get Taxed More, And Take Home Less Money

Absolutely not true. When you move into a higher bracket, ONLY that amount you make IN THAT BRACKET is taxed at that amount. So for example, your old salary was $30,000 a year and your new salary is $35,000 a year. According to the IRS’s 2007 federal tax rate schedules, when your salary was $33,000, your marginal tax rate was 15%. With a salary of $33,000, your marginal tax rate is now 25%.Based on this info, your first $31,850 of income is taxed the same way it always was was before you got your raise. With a $30,000 income, your take-home will be $25,891.25. If you make $33,000, you will take home $28,326.25. This is because only the extra $1,150 above $31,850 is taxed at 25% – not the whole $33,000.

6. Tis Better To Give Than Receive

If you believe this, I’m happy to be the “givee” of your money or other gifts worth giving. Digging deeper philosophically again, neither is better than the other. If you think about it, neither can possibly be better than the other because every time someone is giving, someone is receiving. Being a bad receiver doesn’t make you a good person, or for that matter, a good giver; it just makes you uncomfortable about receiving.Now don’t get me wrong, I give a good chunk to a lot of charities, but I’m just debating the money myth that it’s better to give than receive, and I enjoy giving, but I’m a big fan of receiving too.

Continuation

Stay tuned tomorrow for the remainder of the Debunking The 25 Most Outrageous Money Myths series!

photos by: digidreamgrafix.com, ??103, Per Ola Wiberg (former ponanwi and Powi), Elfboy, mckaysavage,Ravenelle, saschapohflepp,

It Worked! A Loophole In The Fine Print

hank — Fri, 29 Aug 2008 08:01:46 +0000

So several months back I wrote about how I Figured Out A Way To Use ANY Credit Card At Costco and was pleasantly surprised by the way it worked. I hate having to use my debit card for anything as I like the Alaska Air Platinum Plus card to get the air miles on the airline of my choice. Jason brought up another interesting loophole as well though that I’ve proven works.

As Jason mentioned, “my wife discovered this loophole as well. i just recently called my local costco and asked if i could cash out my cash card, and to my surprise she said i could. all i have to do is get a supervisor to do it for me. after hearing this i went online and ordered two $600 gift cards(the limit is $1K per card and i don’t think there is a limit to how many), which we’ll both use for costco gas and food.

my plan is to see how easy it is to cash out and if it proves to not be a problem, i am going to purchase an additional $2K worth of cards per month, cash out, redeposit into my banking account and get those air miles from my mortgage payment. i’m sure that would interest you. it sounds to good to be true. we’ll see.”

I bought a $700 dollar gift card, bought $200 of groceries (I never get out for less than a couple hundred it seems) – and went up to the customer service desk and just asked for the remainder to be cashed out. The manager asked me why. I told him it was to “pay some bills” and he didn’t bat an eye on giving the refund.

Honestly, it’s not his place to say whether or not you can cash out money anyway. Say it is for your kids. Say it is for gambling. Say it is for 15 tons of ice cream. The store manager isn’t your financial advisor giving a ‘yay’ or ‘nay’ on how you spend your money. If you want to spend it on a tuna fish pizza tower, it is your choice.

But I really can’t see them caring either way; if he DOES raise a stink about it, so what? So you want skymiles, they can change their policy if it is that much of a hassle.

The counter you go to is the same as customer returns anyway, the cash is there, the people are there, why not. You bought the card, you see it fit how you’d like to. It’s not costing them anything, they’re just transferring money back that you’ve spent.

I took a similar approach heeding Jim Casey‘s mention about not going over the 2k limit, “I don’t think a manager would let you cash out $2k gift cards, especially on a regular basis – Good luck with that! Plus the value of a $100 in miles is about $1. I don’t think I’d want to chance buying $2000 worth of Costco credit and then not be able to cash it out, simply for a $20 return.”

I agree with the point of airline miles not being worth much at all, and likely I won’t be able to turn a dime off of it, but will be able to save myself some $ when I get a free ticket on my next flight.

Additionally, I have about 3 or 4 Costco stores within driving distance in the Seattle area I live in, so I could bounce back and forth if the $ is right.It’s not about the money I can make by selling the skymiles, it’s about the $ I can save when I do decide to fly.

They’re not worth much on the “airline miles black market”, but they are worth something to me when I DO fly. Last year I used them for a trip to Australia first class.

Long story fairly short, it works. Buy a gift card with your card here. Buy your groceries at the store. Cash the remaining balance out at the customer service desk. Deposit the money back in the bank. Pay your credit card bill off. Get the airline miles free of charge.

25,000 is a free flight anywhere in the USA, and I rack up a LOT of miles using my card day to day for all my purchases. Anyone out there know how to put your mortgage payments on a credit card yet? Now THAT would be an idea I’d like to dip in to – please let me know when you figure that out.

photos by: AgentAkit, jslander, colros

How Do You Save Your Money? (revised repost)

hank — Tue, 19 Aug 2008 08:01:59 +0000

I’ve been posed this question off and on over the past few years, so I figured it best to say the order I put my cash away. If you’ve realized that you DO need to save it, you’ve already jumped the first snag; now the question is WHERE to put the money? There are so many options out there to put it, and just as many people that’ll line up to tell you where to put it, for a fee. Here @ the MiB I’ll give away my secret recipe for FREE! It has changed a bit since the original 1 year ago, but sticks to most of the same premises.

1. Pay Off Your High Interest Credit Cards – BEFORE you start investing, pay off your debt because you’re just building the CREDIT CARD COMPANIES net worth, NOT your own. These are going to stick you harder than anything else when they can charge you 20%+ to use their services. Pay them off and get to the positive.

2. Build An Emergency Fund – In the WORST case scenario you may lose your job; your wife may lose hers. You may have a month or 2 to cook on the credit card, but eventually, you’ll need some $ to pay the cards back. The standard amount varies, but I think 2-3 months of expenses should cover the downtime after credit cards have caught what they could – Put this money in a high yield money market account or high yield savings account.

3. Match Your 401k/403b – If your company will match your investment, you’re silly not to hit the match. This is FREE $ from your company, and IMMEDIATE 100% return on your investment. Try to find that anywhere else. If you do, please let me know.

Many pundits claim that you can find a better deal for your cash, but this is my party, and I vote for taking the $ when you can get it as it may not be there forever.

4. Strike Up The ROTH IRA If You Qualify – If you fall under the 170k amount in 2008 and are Married Filing Jointly, you can’t beat the benefits of a ROTH IRA. You contribute up to $4000 in 2007 ($5000 if over 50) and it is already taxed as you’re putting it in after you get paid, so Uncle Sam has already taken his whack at it.

One of the biggest benefits here is that you only pay the tax that Uncle Sam originally hits you with. That means, it gets taxed when you get your paycheck. It’s funded by the money you put in it AFTER taxes have been taken out. It doesn’t get taxed again, and therefore considered “tax deferred” when you take it out.

One thing anyone can agree with is that taxes are going to go up in the future, they always do. So you’re putting money in at THIS tax rate now and get it out TAX-FREE when you hit 59 1/2. For me that is 30 years into the future, and my guess is that taxes will be more at that time, I vote for tapping what I can.

5 If You Can’t ROTH It, Consider More “Traditional” Means – The one downside to the ROTH is that there are phase out periods of the ROTH starting at a combined MAGI of $160,000 in combined household income; and not contribution after $170,000.

If you make more than 170k combined in 2008, you’re out of luck for the ROTH, but a Traditional IRA offers the same fund choices (anything under the sun) but get taxed when you take it out at 59 1/2. The benefit here is that you’re not paying the tax up front, it’s tax-free putting it in, but taxable (at likely a higher rate) taking it out.

6. External Funds (Index Funds, ETFs, REITs, Mutual Funds) – They’re low risk, they’re already indexed or chopped up stocks that aren’t very volatile, easy to get in to, but do get taxed if they’re outside a ROTH or 401k likely, but if you’ve hit the other 5, this is a logical next step if you’re looking to stay in the standard investing world.

7. Start Your Own Business – So you’ve grabbed your free $ from your 401k, made under 170k last year to peg out your ROTH, and have started to dabble in the stock market with a brokerage account full of ETFs. Now you’re looking for something with a bit more spice. This one moved up since the last writing of the article because of this very site, as blogging indeed can become a business.

It’s risky too, but you don’t have to jump in head first. You can ease in and it won’t cost you much at all, but can certainly benefit from putting some advertising and marketing dollars behind it. It’s also beneficial tax-wise to be able to write off expenses that you’ve built up in building your dream job.

8. Individual Stocks – If you’ve got the moxie, some say to put this one higher up in the ranks; they’re not for me right now though. Blogging has turned into its own adventure as well as some other ideas in the mix that you may be reading about in the future. They’re risky but worth a look if you’ve mastered the previous 7. However, it is likely that you’ll have someone else doing your dirty stock-ings if you’ve dashed through the list thus far.

9. Other Investment Vehicles – Think real-estate or investing in other peoples ideas. Real-estate is coming at a bargain these days – but is still risky enough to lose your hat if you’re not careful. Becoming a venture capitalist isn’t easy, but if you’ve got the $, you can listen to their ideas and decide if you want to put your money behind them. Pricey, but if you’ve got the $, it can certainly be profitable.

Conclusion

Everyone has different choices as to where they put their money. I’ve said before that I’m not claiming to be a professional, just someone who has dug in a bit on it and come to these conclusions on my own.

It’s hard to argue with the start though; dumping your current debt is the first step because unless you’re an investing genius, it’s going to be hard to overcome that 26% that the credit card company is charging you right off the bat. The rest can be argued forever, but tough to scoff at removing the weight before digging in.

What’s your order? Am I missing something? Do you see it a different way?

photos by: cpt.spock, Hamed Saber, Guwashi999

What Do You Do If You Can’t Afford It?

hank — Fri, 15 Aug 2008 08:01:00 +0000

So I had a pretty good laugh from this today; and makes a lot of sense. I remember back in the day when my parents would DREAD credit cards. We’d have one for a purchase we needed to finance and then it was on the phone and cutting up the card IMMEDIATELY afterwards. If my folks didn’t have the $, they didn’t buy it; which coincidentally was almost every time I wanted something!

The Video

If you can watch video on your machine, I highly suggest you watch it to get the full effect as the transcript tells the story, but it isn’t delivered in all its comic genius. As all the politicians say:

My name is Hank, and I approve the following video!

Transcription

For those of you that don’t have access to view videos (or don’t want to laugh hysterically) here is the transcript version. But really, you want to watch the comedy in this all too familiar American kitchen. A husband (Steve Martin) and wife (Amy Poehler) are eating their dinner when the book Salesman walks in…

Wife: Oh, I just can’t get these numbers to add up
Husband: Like we’re never going to get out of this hole.
Wife: Credit card debt, does it ever end?
Salesman: [entering from who-knows-where] Maybe I can help.
Husband: We sure could use it.
Wife: We’ve tried debt consolidation companies.
Husband: We’ve even taken out loans to help make payments.
Salesman: Well, you’re not the only one. Did you know that millions of Americans live with debt they can not control? That’s why I developed this unique new program for managing your debt. [Holds up book] It’s called, “Don’t Buy Stuff You Cannot Afford”
Wife: Let me see that. [Reading from book] If you don’t have any money, you should not buy anything. Hmmm … sounds interesting.
Husband: Sounds confusing.
Wife: I don’t know honey, this makes a lot of sense. There’s a whole section here on how to buy expensive things using money you’ve “saved”.
Husband: Give me that. And where do you get this “saved” money?
Salesman: I tell you where and how in Chapter 3.
Wife: OK, what if I want something but I don’t have any money?
Salesman: You don’t buy it.
Husband: Let’s say, I don’t have enough money to buy something. Should I buy it anyway?
Salesman: No.
Husband: Now I’m really confused.
Salesman: It’s a little confusing at first.
Wife: What if you have the money, can you buy something?
Salesman: Yes.
Wife: Now, take the money away. Same story?
Salesman: Nope. You shouldn’t buy stuff when you don’t have the money.
Husband: I think I’ve got it. I buy something I want, then hope that I can pay for it. Right?
Salesman: No. You make sure you have money, then you buy it.
Husband: Oh, then you buy it! But shouldn’t you buy it before you have the money?
Salesman: No.
Wife: Why not?
Salesman: It’s in the book. It’s only one page long. The advice is priceless and the book is free.
Wife: Wow. I like the sound of that.
Husband: Yeah, we can put it on our credit card.
Announcer: So, get out of debt now. Write for your free copy of “Don’t Buy Stuff You Cannot Afford”. And, if you order now, you’ll also receive, “Seriously, If You Don’t Have the Money, Don’t Buy It” along with a twelve month subscription to “Stop Buying Stuff” Magazine. Order today.

Conclusion

Welp, it is fairly straightforward and need not a lot of feedback but it really does show how the American way of life has changed in the past 30 or 40 years. Like I said at the beginning, my parents wouldn’t have THOUGHT of buying on credit if they had any other way around it. But today people think of credit the same way and dive right in.

Who is to blame? The banks willing to lend or the buyers willing to accept it? Know anybody like this?

An Interesting Loophole In The Credit World To Make A Few Bucks – But Is It Worth It?

hank — Wed, 13 Aug 2008 08:01:09 +0000

In stumbling around the internet this week I ran across a Chicago Tribune article that mentioned renting out your credit to people with weaker scores. I thought to myself, “Is this even possible? And if so, why the h*** would you want someone else using your credit?” The answer then dawned on me; money. Everyone needs money and it is worth their credit score to get it, right?

Therein Lies The Problem

I’ve heard of friends and family adding their kids to their credit card accounts to get them jump-started on the road to credit score health. It shows that they’ve had an account open for a long time, and payments have been made on schedule. It goes hand in hand with never closing up your first credit card account as it shows longevity and will boost your credit score.

The sticky part comes when you realize that nowhere in the any of the credit card fine print does it say that you need to be related to the person of the card. Enter loophole problem #1.

With that door open, why not help someone out that has a bad score if they’ll give you “$x.xx” up front? If you own your house and don’t have a car payment, hey, maybe you don’t care about your credit score, eh? Should you?

Loophole #2 is that you can add as many people as you want to your card.

Maybe the card company people were thinking that you may have 30 or 40 of your closest kids added to your account, or that you lived in a a tribal community that only kept 1 card between everyone. Well, the door just opens even more.

The kicker comes in #3 when the subject of money comes into play.

There is no law against putting a dollar value on it. Some things are intangible, and this probably started out as a guessing game, but apparently has caught on to be more of a science now according to the Chicago Tribune article:

“Some Web sites advertise and price high-quality credit card trade lines on the basis of their credit limits and time on the account. A site called AddaTradeline.com recently offered a card history with a $25,000 credit limit and 2 3/4 years of perfect payments for a fee of $1,025.

Adam Wheeler, who identified himself as the owner of AddaTradeline.com, based in Orange County, Calif., said his business “is legal, although some people might say it’s unethical.” He insisted that his firm does not approve of efforts by clients to mislead lenders. “If they are going to lie to lenders,” he said, “that is not good.”

Each account can rent for as much as $1,500 to $2,000 for 180-day usage. The primary cardholder receives a cut of the rental fee, often hundreds of dollars for each authorized user added.”

I Like Money But Is It Worth It?

Well, short and sweet if you’re reading this blog you know this is a bad idea. Take it further and think that if your card is also authorized by Joe Schmoe to charge against, he’s got the bill sent to his house, are you sure your address or name isn’t on it anywhere? Better hope not, because if it is, he has a name, credit card, and could likely look up an address or call in to the customer care center to say he’s “lost his”.

For some reason, as good of a person as Joe may be, his credit score was bad for a reason, and now he’s got your info. My gut instinct is that Joe isn’t going to be nice to your name. I’d get out before you get in.

Conclusion

Yea, the upfront glitter and glam of getting a few $1000 for renting out your score seems pretty good, but you may end up paying that back trying to get your identity back in check once someone has gotten ahold of your critical pieces of pie. Hold it tight and just remember the old saying, if it sounds too good to be true, it probably is…

Net Worth Update July 16, 2008 [$102,416.87(-9.57%)

hank — Tue, 22 Jul 2008 08:01:21 +0000

Welp, the landscaping and deck building this past week dug deep into the e-fund and overall numbers so they’re not really as bad as they show up because they should both pay off more than the 8k-ish spent on them.

Be sure to enter Hanks Holiday Handouts #3 before Aug 6 to win your share of $300!

The deck was actually the Trex decking that doesn’t mold, need to be re-stained, no maintenance. I think it was (and will be) very worth it in the long run.

The rest of the portfolio dove pretty hard along with the rest of the country. I am still sticking in 15% on my 401k and am at $2600 into my ROTH for the year, so I’m still trucking along there.

Although it is disappointing to see cash leaving my account, the positive is that I’m getting good funds at cheaper prices by using the dollar cost averaging. I wrote about a similar post last week when Lazlo asked if he should keep his $ out of the stock market because it was doing poorly.

As you can see, I am taking my own advice (go figure) and not going anywhere. I don’t plan to go “anywhere” for another 30 or 40 years, so I’m going to see bumps like this; no worries though.

Money Hacks Carnival #18 — The History Of Money!

hank — Thu, 26 Jun 2008 14:12:29 +0000

So I did some deep undercover investigation for this weeks carnival digging back in time to bring you The History of Money! Did you know that China was the first to use paper money around the year 1000. It was made from the bar of mulberry trees. Leaves from these trees, you may recall, are feed to caterpillars to produce silk. I honestly don’t know the last time I used paper money – I stick to plastic. Without further adieu…

The Editors Picks – Series 1934 Gold Certificates Go To:

The largest denomination of currency ever printed by the Bureau of Engraving and Printing (BEP) was the $100,000 Series 1934 Gold Certificate featuring the portrait of President Wilson. These notes were printed from December 18, 1934 through January 9, 1935 and were issued by the Treasurer of the United States to Federal Reserve Banks only against an equal amount of gold bullion held by the Treasury Department. The notes were used only for official transactions between Federal Reserve Banks and were not circulated among the general public.

A lot of good submissions this week, but the Series 1934 Gold Certificates go to:

Dorian Wales presents The Importance of Learning to Let Go posted at The Personal Financier. I grew up in a family that had a tough time letting go of a lot of things. Maybe it was because we were so frugal with everything, but we did and this post hit home.

Aryn presents Avoid Baggage Fees: How to Pack a Suitcase posted at Sound Money Matters. It’s a lost art, but I lived by it when I got out of school and went traveling – if you don’t know how to do this, you best stay home.

Livingalmostlarge presents Investment Mistakes a Couple Makes posted at LivingAlmostLarge. I’ve made a few mistakes on that front, and it’s a list that you don’t see often, but it is DEFINITELY worth reading.

Broke Grad Student presents 9 Simple Ways To Save Money On Gas posted at Broke Grad Student. With gas where it is now, this is always something people are interested in. The tips may “seem” small, but when we’re looking at where gas is headed, every penny counts!

Big Bills, Big Dreams

On July 14, 1969, David M. Kennedy, the 60th Secretary of the Treasury, and officials at the Federal Reserve Board announced that they would immediately stop distributing currency in denominations of $500, $1,000, $5,000 and $10,000. Production of these denominations stopped during World War II. Their main purpose was for bank transfer payments. With the arrival of more secure transfer technologies, however, they were no longer needed for that purpose. While these notes are legal tender and may still be found in circulation today, the Federal Reserve Banks remove them from circulation and destroy them as they are received.

Hilary Green presents When is Leasing Not For You? | Cars for Girls posted at Cars for Girls.

Ybother presents 10 Ways To Get The Best Price For Your Car posted at www.ZhouWenhan.com.

Dividends4Life presents The Will to Win posted at Dividends4Life.

jim presents Advanta Business Card for Bloggers, eBay, PPC posted at Blueprint for Financial Prosperity.

Unique Money Uses

The $2 bill has not been removed from circulation and is still a circulating denomination of United States paper currency. The Federal Reserve System does not, however, request the printing of that denomination as often as the others.

The Series 2003 $2 bill was the last printed and bears the names of former Secretary of the Treasury John W. Snow and Treasurer Rosario Marin. As of April 30, 2007 there were $1,549,052,714 worth of $2 bills in circulation worldwide.

Joy Harrison presents Reduce your debt load: 9 proven techniques posted at Money Sense.

The Happy Rock presents Sometimes You Just Don’t Feel Like Saving Money posted at The Happy Rock.

FMF presents A Real-Life Example of How to Save $1,300 in Less than Two Hours by Shopping Around for Car Insurance posted at Free Money Finance.

Mark Runta presents Seeking Therapy for Debt Management posted at investing lessons.

NtJS presents Do You Trust Trans Union? posted at not the jet set.

Steve Faber presents - Top Debt Consolidation Loans – How to Get the Best Debt Consolidation Loan posted at Debt Free.

passive family income presents Creating a monthly family budget to track income and expenses. | Passive Family Income posted at Passive Family Income.

MrsMoney presents Does it Make Sense to Drive Farther to get a Lower Price on Gas? posted at The Ultimate Money Blog.

Brice Hogan presents How to Radically Save Money posted at Financialzip.com.

Saving Money Tips

On March 10, 1862 the first United States paper money was issued. The denominations were $5, $10, and $20. They became legal tender by Act of March 17, 1862.

The inclusion of “In God We Trust” on all currency was required by law in 1955. The national motto first appeared on paper money in 1957 on $1 Silver Certificates, and on all Federal Reserve Notes beginning with Series 1963.

retirehappy presents Rules on Claiming Dependents posted at My Retirement Blog.

RothIRA presents Graduation Gift Idea: Roth IRA posted at Roth IRA Explained.

DMH presents Best Gas Credit Cards posted at Daily Money Hack.

FFB presents Customer Service Done Right 1800Contacts.com posted at Free From Broke.

PT presents Credit Card Rewards – Are They Really Worth It? posted at Prime Time Money.

Joe Manausa presents Property Flipping Re-Energized? posted at Tallahassee Real Estate Blog.

Helen Anderson presents 8 Tips for Saving Money and Your Life posted at Bankaholic.

Mrs. Common Cents presents 8 Tips to reduce your medical spending posted at Our Common Cents.

J. Savings presents Save $10 bucks and wash that sexy car of yours. posted at Budgets are Sexy.

Chief Family Officer presents Lesson: Always track Amazon’s prices posted at Chief Family Officer.

Joy Harrison presents Cash-out refinance loan? is it a good choice for extra cash? posted at Money Sense.

Coupon Artist presents How Couponing Changes Your Outlook on Life posted at artofthecoupon.com.

Kaye presents Savannah Family Fun – The Intro posted at Mrs Nespy’s Frugal World.

Heather Allen presents Where There’s a Will… posted at The DebtFree Playbook Blog.

Bill D presents 13 Lucky Tips to Save on Life Insurance posted at The Wealth Hunter.

Worldly Money Influence

Reserves were formerly held only in gold, as official gold reserves. Under the Bretton Woods system, the United States pegged the dollar to gold, and allowed convertibility of dollars

to gold. This effectively made dollars appear as good as gold. In 1971, however, the U.S. abandoned the convertibility of dollars to gold, and the dollar became a fiat currency.

Since then, all major currencies have removed convertibility to gold, resulting in a general devaluation of world currencies over time. The dollar has remained the most significant reserve currency, though central banks now typically hold large amounts of multiple currencies in reserve.

Foxie presents The Latest Object of My Affection posted at Dreaming of Ferraris.

Silicon Valley Blogger presents Managing All My Money Is Futile: Outsourcing My Finances posted at The Digerati Life.

Will presents Prepaid Visa Travel Cards posted at Your Finish Rich Plan – A Personal Finance Blog.

GBlogger presents Market Plummeting! Recession! Plague! posted at CAN I GET RICH ON A SALARY.

Interesting Hack (Facts) About The $100 Bill

The vignette on the back of the $100 note is Independence Hall in Philadelphia. There are three people depicted in the engraving. Two (a man and a woman) are in front of the hall close to the building; the third person is a man pictured looking toward the building. There is no record that the man and woman are embracing.

The hands of the clock are set at approximately 4:10. Although the time is not readily identifiable to the naked eye, it may be verified if examined under twenty-fold magnification. There are no records explaining why that particular time was chosen.

Lisa Spinelli presents The Dope On Stagflation posted at Greener Pastures.

Ryan Taylor presents What are the Risks of Shorting Stocks? posted at Millionaire Money Habits.

The Shark Investor presents No Buzz = No Business posted at The Shark Investor.

MoneyKing presents Real Estate Profits And Losses: Burn, baby. Burn!!!!. Scenario 39. posted at The Money Kings – RULE your money at home, at work, and at play!.

CreditAddict presents Amex Delta SkyMiles Cardholders Can Pay With Miles posted at Credit Card Addict.

nickel presents Four Financial Tips for Recent Graduates posted at fivecentnickel.com.

mbhunter presents Why are some gift cards more “expensive” at MyPoints? posted at mbhunter.

Kay Bell presents Tax help for summer camp costs posted at Don’t Mess With Taxes.

Madison presents What is Credit Card Arbitrage? posted at My Dollar Plan.

Brooke presents Six Flags and Other Theme Park Details posted at Dollar Frugal.

Ray presents Best 0% Balance Transfer Credit Cards posted at Money Blue Book: Personal Finance Blog.

Bryce presents Perot Charts posted at Save and Conquer.

Pamela Grundy presents Recession Monday: Do Vegetarians Save More Money? | Personal Finance Analyst posted at Personal Finance Analyst

Amanda Milne presents Show Me The Coupons! posted at Value For Your Life.

RC presents 7 Reasons You May Not Have Received Your Economic Stimulus Rebate Yet posted at Think Your Way to Wealth.

Kevin Fleming presents Netflix 30 Days Free Coupon – Satellite TV Guru posted at Satellite TV Guru.

Thanks to everyone for participating! Keep an eye out next week over at SoundMoneyMatters as the carnival heads that way!