Are Holidays A Total Waste of Money?

The following post is by MPFJ staff writer, Catherine Alford. Cat is a freelance personal finance writer who blogs at www.BudgetBlonde.com. 

I should probably admit upfront that I have a bit of a sore spot when it comes to holidays.

I used to love them so much growing up. I enjoyed Christmas as a kid, and my dad always made us girls feel special on Valentine’s Day, etc.

After my family endured Hurricane Katrina in 2005, I remember sitting there numbly that first Christmas after the storm. I got in my car after my last exam and started to head “home” in the opposite direction from the house I grew up in. It was a really devastating moment for me. For so long, the house I grew up in was what Christmas was to me. Driving somewhere else, after everything we had been through, was too much for me. All I wanted was to go back to a few months before when everything was right with the world and our house wasn’t damaged by flood waters. I cried the whole way to our rental house in another city. It was awful. I don’t even remember what happened on Christmas Day; it was all a blur.

I also remember the first time we celebrated Thanksgiving after the storm. The Thanksgiving directly after Katrina, my family went on vacation. I just don’t think my parents could bear the idea of dealing with such a big holiday after so much devastation. However, I remember the one after that, my dad went and bought a new dining room table (because all we had at that point were just really basic stand ins) and we had a proper Thanksgiving feast. It was really sweet and really memorable. So, I guess I can’t say all holidays are bad. It’s just they aren’t all they are cracked up to be.

At the same time, when my husband and I moved out of the country, we spent countless holidays away from our families. We made new traditions and new friends, but there was always this nagging feeling that we should be somewhere else, doing something else.

All of these experiences over the past 8 years have made me a little bit grumpy about holidays in general. I just don’t understand them and wish they didn’t exist. Perhaps this will all change when I have kids, as I’m going to try to make things as positive as possible for them. However until then, let’s look at some facts:

 

1.     Holidays Are Expensive

We can’t just have a normal holiday in the States.

We are pushed and pressured to buy extensive decorations, new wreaths, cards, and anything else this consumer driven economy can throw at us. Even in the middle of a recession, stores were still pushing people to buy, buy, and buy some more. Plane tickets and hotel prices always go up just so people can make a buck, and everyone is sad the month afterwards because they spent much more than they anticipated.

 

 2.     Holidays Are Stressful

Everyone takes pictures of themselves on holidays and portrays their absolute best selves on social media. But what those pictures don’t show is how stressed your mom got when she burned the turkey, how you had to yell at your kids to clean up the house because you had company coming over in five minutes, and how many dishes you had to wash after the fact. Plus, there’s that unspoken pressure too.

Maybe your wife has high expectations for Valentine’s Day and maybe you feel like you should plan something or book a reservation at a nice restaurant lest you fail as a husband. All of these expectations, pressures, and stress make holidays something to dread, not something to look forward to. I guess it really depends on the type of family and the type of relationship you have, but on the whole I feel like people expect a little too much out of these “special days.”

 

 3.     You’re Always Going to Hurt Someone’s Feelings

The worst part about any holiday is that you’re always going to hurt someone’s feelings.

Someone, somewhere whether it’s your best friend or your great-grandmother is going to wish you would have done something differently. You can literally drive and fly all over the country going to 5 different Thanksgiving dinners and someone will be mad that you weren’t there at a certain moment. It’s really hard to establish your own traditions and try to decide which family member’s house you’re going to go to.

If holidays didn’t exist, you could just invite your parents and your siblings over any old time without worrying that you’re neglecting one half of the family just because you weren’t there on this very specific pre-planned day.

Ultimately, there are many things in this world that are a total waste of money, but to me, national holidays rank pretty high on that list. With a whole slew of them coming up, including the ever so popular Valentine’s Day and then Mother’s Day, remember to keep it simple, take it easy, and to try to do your best. I personally asked if I could order a few pairs of pink socks for Valentine’s Day to put in my hospital bag. If that’s not a perfect way to spend such a big, commercialized day, then I don’t know what is.

How about you all? How do you feel about the holidays? Do you think I need to lighten up a bit when it comes to them?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/76657755@N04/7027602839/sizes/l/

International Micro Lenders – Do They Have a Loan for You?

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

If you haven’t heard of international micro lenders, you’re in good company.

The majority of Americans haven’t, and for good reason. Micro lending has it’s origins in poor and developing countries, and has only surfaced in the US in the past few years. The concept has been brought into the US by people who, unable to get traditional bank loans, must rely on alternate sources to get credit. This development has particular meaning for upstart entrepreneurs, who are the target market of micro lending.

 

What is a Micro Lender?

Micro lending started in Third World countries precisely because bank loans and other sources of traditional credit were never available in those regions. The practice is forming into an identifiable industry only in recent decades. Early on, it was a decentralized form of lending, often done at a very local level. Today, there several hundred micro-lenders worldwide, and they are now moving from Third World and developing countries into wealthier places such as the United States.

Given the traditional markets that they serve, the typical loan size is just a few hundred dollars. But in Third World regions, that represents the type of capital that will enable a would-be entrepreneur to build a successful business. Here in the US, the average micro-loan size is in the range $12,000.

Micro-lenders are typically nonprofit organizations, established for the primary purpose of enabling the lowest income groups to make the transition from poverty into entrepreneurship. In many areas of the world, there are simply no jobs, and the only way out of poverty is starting a business. Micro lenders have developed in order to facilitate this process.

 

Micro lending in the US

The operation of micro lending organizations in the United States is more complicated. Banks are the traditional lenders, and have built a battery of commonly accepted lending guidelines. Most people in the US are able to qualify for loans from banks, or at least have revolving credit lines available to tap for relatively small amounts of credit.

But just as it does in the Third World and developing countries, micro lending exists to serve those who do not have access to credit.

And though a few hundred dollars doesn’t go very far in the US, a loan of just a few thousand dollars is often all that is needed to launch an upstart business. This is particularly true today, since most businesses are either service related, or launched online where fixed costs are lower than with a typical bricks-and-mortar business.

Banks have avoided servicing this clientele, because of their preference for making much larger loans. The cost associated with a bank loan of just $5,000 or $10,000 make profitability problematic. However, since banks often want to reach out to the lower income market as a way of building future clientele, they sometimes partner with micro lenders as a way of beginning those relationships. In addition, many banks are participating with micro-lenders as a way of fulfilling their obligations under the federally enacted Community Reinvestment Act, which requires lenders to actively participate in lower-income neighborhoods.

As you might imagine, micro lending represents a very small percentage of total lending that occurs in the United States. However, micro lending is a relatively recent phenomenon in the US, but it has been growing steadily, and is expected to double the next decade or so.

Here is just a small sampling of the hundreds of micro lenders that currently allow investors from the US to invest in international micro loan.

 

Kiva

Kiva; operates with the mantra of Empower people around the world with a $25 loan. That is the minimum loan amount, but the average loan is $414 and they’ve made them to more than 1 million people.

Kiva is a non-profit micro lender that started in 2005. It operates in 73 countries and has over $500 million in outstanding loans. The organization reports a repayment rate of nearly 99%, which is common in the industry.

 

United Prosperity

United Prosperity is a very small micro lender, providing just $280,000 in loans to 1,300 families, which works out to be just over $200 per loan.

The organization works a little like Lending Club, in that it solicits capital from supporters who put up the money that’s lent out, except that profit isn’t the motive – philanthropy is. The majority of money put up by supporters is returned through loan repayments, and the supporter has the option to remove his or her money from the program, or recycle it back for future loans.

 

Accion

Founded in 1961 in Venezuela, Accion is one of the oldest and largest international micro lenders in the world. The organization came to the US in 1991, and is now the largest micro lender in the country, making loans of $305 million to 26,500 borrowers. That works out to an average loan size of about $12,000 – a more credible amount for a high cost country like the US. They are active in more than a dozen states.

They will make loans in the US in amounts ranging from $500 to $50,000, and their site not only asks some general credit related questions, but also makes clear that they will run a credit report on you. One of the questions is “do you have a credit score of over 525” and while they don’t explicitly say so, the implication is that this is something of a threshold. So if you’re credit is really bad, you may not have much luck with them.

 

Count Me In

Count Me In started in 1999 and lends specifically to women, primarily for business purposes. Their partners include well known organizations, such as Capital One and Sam’s Club. Founder and President Nell Merlino is an international expert and advocate for women’s leadership, business growth and empowerment, and the creator of Take Our Daughters to Work Day.

The organization provides business assessment, coaching, peer groups, expert advice, and financing. Thought the organization’s website doesn’t disclose it, Bankrate reports Count On Me will make fixed rate loans from $500 to $10,000 at two points above prime, and terms ranging from 12 to 84 months.

How about you all? Have you ever worked with a micro lender? How was the experience?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/iamagenious/3177371445/sizes/l/

Three New Places to Discover Gratitude in 2014

The following post is by MPFJ staff writer, Sally. Sally is the blogger behind TinyApartmentDesign.com, a blog about design, living well, and simple, tiny spaces. Enjoy! 

I can’t help but feel that the Gratitude movement was hijacked by some of the sillier forces in our culture- you know, the Eat, Pray, Love’s of the modern era. But, gratitude is incredibly important, and a powerful way to start the new year, no matter what your intentions are for the year.

At its very core, gratitude is about acknowledgment.

It doesn’t mean you need to sugarcoat everything, but simply acknowledge what’s there and recognize that more often than not, there are positive aspects to everything around you. It can illuminate a situation and open up new paths of action for you.

 

Politics

Here’s one thing we all like to complain about.

You can regularly catch me saying that I won’t participate in that “charade” or that the political parties are both so meaningless that identifying oneself as either/or of the main parties is to admit total ignorance of the politics really being played in this country.

Pause.

Now if I had uttered that same idea in say, the Democratic People’s Republic of Korea, I wouldn’t get very far. But here I can suggest whatever I like about the government (NSA wiretapping aside), I can go to my local city hall and demand access to the city’s purchases, payments and decisions for the last 15 years, I can write a treatise on why the latest bill in Congress is total bunk and live to tell the tale!

Why am I grateful for this?

Because it’s the foundation of our society. Sure, we think government doesn’t play a role in our everyday lives, but just visit a country with less guaranteed freedoms and see how quickly it starts to affect your life. Does this affect your finances? Absolutely! You can petition for lower permitting fees, capital gains tax rates and just about everything else. If the government declared it, you can appeal it.

 

Your Lifestyle

When I hit the big 30, I finally opened up my eyes about my lifestyle.

I’m grateful every day that I can still play the sports I love and work out and all, but my sleep patterns and eating habits were all over the place. I wanted to show more gratitude toward my body. With so many healthy eating options, places to learn more about how our bodies work (and thrive), it is easy to be grateful about the tremendous impact we can have on our lives by just making little changes in our lifestyle. In the long run, this will save you so much more than money towards healthcare, it will save you heartache, stress and your life.

 

Your Biggest Problems

I prefer to attack my problems via blogging so that I can figure out how to fix them. My “big” problems used to be my debt and my insecurity. Well, I’ve paid off my debt and I am pretty confident in life, although I continue to work on it.

Now I think of my big problems as still not achieving my desired amount of income, and not going after the businesses I want to own and operate. But really, I am grateful for these “problems”, because they are just the next challenges, the ways that I will learn more about running a business, presenting my skills, going after what I want…in fact, these big problems tend to sound pretty fun when I think of them like that!

 

Just Three Things a Day

The gratitude habit is easy to start. You’ve seen the statistic over and over again: just find three things each day to be grateful for and it will change your focus from the negative to the positive. I’m not telling you to start wearing free-flowing pants and drink kombucha, just try this gratitude thing for a week. I think you will be pleasantly surprised at where it takes you in 2014, in your health, your finances and life.

How about you all? Have you tried a gratitude experiment before? Was it worth the effort?

Share your experiences by commenting below! 

***Photo courtesy of http://www.sxc.hu/photo/1426735

Is Setting Up a Trust Right For You?

This is a post by MPFJ staff writer, Jeff. Jeff writes about Sustainable living and finances at his website, Sustainable Life Blog. Jeff really enjoys traveling with his wife as much as he can, to wherever he can.

A lot of people think that trusts are only for people with huge amounts of wealth, and they simply don’t bother looking into them because they have more important things (financially) to worry about.

People just like me, who own a house, have a few assets in various retirement accounts and money in the stock market and a net worth of around 6 figures don’t think that trusts are for them.

Here’s the thing though – a trust may be just the thing for you (and me). Trusts are great for handing down assets to your children or spouse while lowering your tax burden. Another great reason for a trust is so that your family can have immediate access to your assets. If you simply have a will, the estate may end up in probate court and could take quite a while for your heirs to get access to. In addition to access delays, they can also cost you (your trust) money. Raise your hands if you like paying lawyers even more money……Anyone? Thought so.

 

So, Why Should You Create A Trust?

A trust is simply a tool to help you lower your tax burden when transferring assets.

They also help make sure that your wishes are carried out after your death. For instance, if you really like the charity Performing Animal Welfare Society, and want to see a significant portion of your assets passed on to that charity a trust can do that for you. A trust can also ensure that your assets are directed to the right person when you pass on. You can leave the majority of the trust to your second wife, and make sure that the children from your first marriage are taken care of.

One of the most important benefits of a trust (in my mind) is privacy. With a will, everyone will see what your holdings are and how they are distributed among your loved ones. That is not so with a trust.

 

Two Main Types

There are two main types of trusts that we will talk about – revocable trusts and irrevocable trusts.

An irrevocable trust is something that can not be changed once the trust is set up unless the beneficiary approves it. For instance, if you wanted to fund a trust for your child or spouse and created an irrevocable trust, your child or spouse would be the only ones who could change things within the trust. Once you create the trust, the assets are officially out of your control.

A revocable trust (sometimes called a revocable living trust) is a trust where the grantor (you) can change the terms if need be. The trust also dispenses income to the grantor (you) until your death, and then the trust and income go to the beneficiaries. The dispensation of funds from the trust can also happen when and how you specify. Lets say you set up a trust with 1 million in it, and happen to pass on while your twin children are in high school. Instead of them waking up one day parentless millionaires, the trust can be set up to pay for their schooling, then hold and grow the money until an age specified by you – say 25% of assets when they are 24, 50% of assets when they are 35, and the remaining 25% when they are 42. That way, you wont present an 18 year old with a half million dollars and have them wonder where it went in 4 years.

All in all, while trusts are more expensive than wills to set up, they do offer significant benefits even if you don’t have a lot of assets. Trusts can assist with your asset distribution and help your estate avoid a costly probate. Trusts can also make sure that your assets are distributed how you want them to be.

There are many types of trusts, but these are the two most common for middle and lower income households looking to preserve and pass on wealth.

How about you all? Do you have or have you ever thought of setting up a trust for you and your family? Why or why not?

Share your experiences by commenting below! 

****Image courtesy of http://cdn.morguefile.com/imageData/public/files/c/cohdra/preview/fldr_2008_11_08/file0001508044668.jpg

My Personal Mortgage Refinance Journey

The following post is by MPFJ staff writer Travis.  Travis is a customer blogger for Care One Debt Relief Services, and also appears weekly at Enemy of Debt.  Travis candidly shares his personal journey to pay off $109,000 of credit card debt and the tips he’s learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family.

My wife and I have been working through the process of refinancing our home over the last few months.  Our current mortgage is split across two loans, the first being an adjustable rate mortgage, the second being an interest only home equity line of credit.  This creative financing was done when we built the house to keep our payment as low as possible allowing us to build the house we wanted.

We are approaching the ten year mark when our home equity line of credit, as per the terms, will also be converted to an adjustable rate mortgage.  With rates beginning to climb, we decided to investigate refinancing.

 

Refinancing Goals

Before our initial meeting with a mortgage banker, Vonnie and I made a list of goals and objectives we had for the refinance:

Affordable Monthly Payment:  Our current monthly payment of our first and second mortgage combined is $1882.  With the end of our debt management program less than two months away, we could swallow an increase in our montly payment, but we’d like to minimize it as much as possible.

One Mortgage Payment :  We really wanted to get both loans combined into a single mortage.   That way it’s all under one loan, with the same terms.

Fixed Rate:  With interest rates climbing, we want to lock in our interest rate for the life of the loan.  We’re done playing the adjustable rate game, and the interest only second mortgage has 20% of our mortgage making no progress towards the balance.

No Personal Mortgage Insurance (PMI):  PMI is insurance for the lender in case you default.  For the borrower it’s like flushing money down the toilet each month, which we definitely do not want to do.

20 Year Term or Shorter:  A 20 year term would have us paying off our home when we are 60 years old.  It’s scary to think we wouldn’t own our home until we’re that age, but it’s still before retirement age.

 

The Options

After meeting with a mortgage banker at our bank regarding our we were presented with two different options to refinance our combined mortgage balance of $262,000.

Option 1:  30 year, fixed rate mortgage with PMI at 4.875%

This was the most conventional loan option presented to us.  We would be required to pay PMI until our loan to house ratio was at 78%.  We would pay $171 per month in PMI premiums for about 72 months if we didn’t make any additional principal payments.

Monthly Payment: $2046

Total Interest + PMI: $255,056

Option 2:  30 year, fixed rate mortgage with no PMI but with a higher interest rate of 5.5%

The bank did have an option that did not require PMI, but to compensate for that the interest rate is higher.

Monthly Payment: $1977

Total Interest: $278,967

We decided to investigate further options, so we talked to a second bank which presented us with two additional options.

Option 3:  30 year fixed rate mortgage with no PMI but with a higher interest rate

Our second bank’s PMI providers do not work with borrowers that are working with debt relief programs.  They could, however, offer us a 30 year “in house” loan with no PMI, however it comes with a higher interest rate (5%).

Monthly Payment:  $1923

Total Interest:  $251,789

Option 4:  Split Mortgage with no PMI

30 year fixed rate mortgage on 80% of loan at 4.75%

20 year fixed rate mortgage on 20% of loan at 5.99%

Combined Monthly Payment:   $1957

Total Interest:  $235,181

Because our monthly debt to income ratio is high until we complete our debt management plan, neither bank would offer us any mortgage options with a term of 20 years or less. Unfortunately, that meant that one of our goals would not be met.

As we worked through the underwriting process in parallel with both banks we were disappointed to be informed that the second bank declined to officially approve us for either of the two options our banker initially thought we had a chance with.  Therefore we were left with only the first two options.

 

The Analysis

Both options one and two gave us a single affordable mortgage payment with a fixed rate.  Option two did not have PMI, however in the long run would cost us $23,000 more in interest over the term of the loan.  Given this analysis, we told our banker to move forward with option one.

It took several weeks of gathering additional tax forms, asset statements, and explanation forms for items on our credit report, but eventually the first bank did approve us for option #1.

 

The Final Numbers

The whole process took two and a half months, much longer than I had anticipated.  Several payments were made as we navigated the mortgage refinance path, so our final numbers ended up being slightly different than originally projected:

Principal + Interest:              $1400.00

Property Taxes:                     $  340.00

Homeowner’s Insurance:   $  119.00

Total:                                       $2030.00

Our new payment is $148 higher than our current payment, but it’s well worth it to have it all combined under a single fixed rate.  Plus, after we reach a 78% loan to home value ratio, we can have PMI removed and our mortgage payment will be reduced to $1859, which is lower than what our payment is now.

 

The 20 Year Plan

It was all settled and our closing date was set, however one thing was missing from our mortgage refinance.  Our new 30 year mortgage would mean we would have a house payment until we were 70 years old.  Using a mortgage calculator we determined that we could have our mortgage paid off in 20 years by increasing our monthly payment manually by $300.  This is easily within our reach once we complete our debt management plan at the end of February.  Our first mortgage payment is due March 1^st, and we plan to pay an extra $300 on our mortgage starting with the very first payment.  The papers may describe the loan as a 30 year loan, but that doesn’t mean we have to treat it that way.

On January 10^th, we signed the papers and closed on our refinanced mortgage.  We celebrated that evening with a movie and an inexpensive bottle of champagne knowing that we have one more piece of the puzzle in place towards getting our finances completely on track.

How about you all? Have you considered refinancing your home loan mortgage? Why or why not?

Share your experiences by commenting below!

 ***Image courtesy of Stuart Miles / FreeDigitalPhotos.net

How To Better Your Finances With Just 30 Minutes A Day

The following post is by MPFJ staff writer, Catherine Alford. Cat is a freelance personal finance writer who blogs at www.BudgetBlonde.com. 

I know it’s hard to find time in the day to do anything. I always sit at my computer writing and bewildered that it somehow got to be 1 AM in the morning.

So, I get it – You don’t have thirty extra minutes. No one does. But, when it comes to finances and staying on track, thirty minutes a day can make all the difference.

Here’s how:

 

1.    Track Expenses – Total Time Commitment – 10 Minutes

Tracking what you spend is an enlightening and sometimes cringe-worthy process. When you are just getting started in the budgeting process, it’s hard to see how much money is wasted on small purchases or even on big purchases like a grocery run where you have no idea how you spent so much in one trip.

I like to track my expenses as I go with a phone app. I just basically plug purchases in as they happen and my husband does the same. It makes it really easy for us to stay on track together.

Of course, if you don’t have time for that during the day, writing down what you spend at night is really important. The reason you have to do it every day is because it’s too hard to remember spending patterns from an entire week.

You might think that you remember your coffee purchase at the gas station, but how many times have you thought there was cash in your wallet only to find out it’s not there? I’ve done that so many times myself, and tracking expenses has made things a ton easier. Plus you can avoid that moment of panic where you wonder if somehow someone stole cash out of your wallet!

 

2.    Family Meeting With Your Other Half – 10 Minutes

If you are tracking expenses and know where you money is going, that’s awesome. You’re already doing better than the vast majority of Americans. However, no matter how well you are doing with your personal finances, your other half also needs to be on board as well.

There’s nothing more annoying than being ultra organized with your cash envelopes and suddenly realizing something is missing. Quite often, it’s usually your other half who was trying to be helpful by using the envelopes or using a certain card that you requested, but they’re just not on the same page.

I’m not saying that any of us have to be the ultra controlling boss-lady or boss-man of the family finances because that’s no fun. I wouldn’t want someone telling me how to spend every penny. I’m just saying that 10 minutes a day of some good communication and keeping on track with your other half can do amazing things for your level of organization and your finances.

 

 3.    Account Checks – 10 Minutes

I don’t know if this is overkill or not (it probably is!) but I check all of my accounts every day.

This includes credit cards that I don’t use anymore, current credit cards, and all my checking accounts. It’s important to me that things add up and are in line every day. The reason is that if you know your purchases or when bill are due, all of that is fresh in your mind from the day and you can ensure your accounts match what you thought you spent.

This can be a big help in preventing identity theft. I’m always really saddened to hear about people who have to deal with that and don’t find out about it until too late. They might get notices that they ignore or all of a sudden find out that their credit card is maxed out. When something like that happens, it takes so much work and heartache to undo it. By checking accounts every day and being on track with your spouse, you can rest easy at night knowing that everything is running as it should.

These three tasks together will take 30 minutes a day. You can do them all at once or spread them out throughout the day, like I do with logging my spending. Seeing as many people watch a TV show or two every night, which can easily take an hour or more, I think it’s a small sacrifice to cut out one show and take a big step forward in making sure all of your finances are on track.

The best thing about all of this is when you are hyper aware of your spending patterns and goals, you are more likely to resist impulse buys and other extras. Slowly, over time, you’ll develop awesome habits that will truly benefit you and your family.

How about you all? What are some other ways to keep your finances in check for just a few minutes a day? Is anyone else trying to stay on track this year?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/paxson_woelber/5434555706/sizes/l/

10 Money Tips Parents Should Teach Their Kids

The following post is by MPFJ staff writer, Shondell of Call Me What You Want, Even Cheap. She blogs about her recent car loan and mortgage pay off and a whole bunch more. Check out her blog right here.

One of the most important lessons that your children need to be taught is about money. Children who are good at handling their own money grow up to be responsible adults with the potential to become wealthy. Unfortunately, this is one subject that is almost entirely left out in schools, so it falls on the parents to teach them this lesson.

So here are 10 money tips parents should teach their kids:

1. “Money doesn’t grow on trees”: A lot of kids have no idea how hard their parents work to earn money. As a result, sometimes they become very demanding and want to have everything they see. This is of course is a recipe for disaster, and often times these children grow up to become spendaholics. Tell your children that money doesn’t grow on trees and that one has to work hard for it.
2. “It’s cool to save”: Most kids want to spend their money as soon as they get it. Spending money makes them feel cool. To teach them to save money, you can tell them over and over that it’s cool to save and “uncool” to spend all of their money, explaining how they will be able to buy the things they want once they have saved up enough. Don’t forget to do the same thing in your own life, so the kids also see by example.
3. “Open a saving account”: Once your kids have saved enough money to open a bank account, help them to open one. Find one that is child friendly. This will teach them a practical lesson about banking, which will come in very handy as they grow up. Encourage them to save every penny they can spare.
4. “Be patient for the things you want”: By nature, children are impatient and want instant gratification. If you give in to all their demands, they will grow up to become difficult adults with wasteful habits. To encourage sound money habits, teach your children to be patient for the things they want
5. “Keep track of your income and expenses“: Just like adults, children need to learn to keep track of their income in order to manage their money. If you are not in the habit of doing so, then it’s never too late to start a budget. Teach them to keep a record of every penny that comes their way and every penny they spend either in a notebook or an Excel worksheet.
6. “Always spend less than what you have when buying anything“: Children rarely think of the future and spend every penny they have on the things they want. This often develops into a habit as they grow up. Teach your kids that spending all their savings is a bad idea. Teach them to spend, give, and save so it becomes natural when they are older.
7. “Donate to charities”: Teaching children to donate to charities is a great way to show them the importance of giving back, for a more fulfilling life. Giving can teach children responsibility because they are thinking about others, and not only themselves.
8. “Investing can secure your future“: Every child needs to be taught that smart investing can create a lot of wealth down the road. Teaching them the basics of investing and showing them some of the things you invest in, can give them a better understanding of what they can do with their money when they are older.
9. “Use every income opportunity available”: Children who learn to earn money from an early age often grow up to become wealthy adults. Teach your kids to look for money making opportunities. They are all over the place, from starting an online business, to raking the neighbor’s leaves, shoveling the snow, and having garage sale. Teaching them to have multiple streams of income will go a long way once they are older.
10. “Borrowing and paying interest can be dangerous”: Once children develop the habit of borrowing money whenever they need it, it becomes quite difficult to stop. This can land them in trouble again and again throughout their life. Teach them by example how borrowing and paying interest can be very expensive. You can even have fun with it, to teach them a lesson. Lend them some money and make them pay a high interest rate every month (similar to what a bank charges. Don’t forget to charge them a penalty if they are late). This will be a good way to teach them a lesson on the dangers of borrowing.

Some parents do a very good job at teaching their kids about money and some don’t. If you belong in the latter category, there is no need to lose hope. You can learn as you teach your kids and become a better money manager yourself in the process, which will go a long way in solving your own financial problems.

How about you all? What are some additional money tips you teach your kids?

Share your experiences by commenting below! 

***Photo by Ingrid Callot

What To Do If You Have a Lousy 401(k) Plan at Work

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Just because you have a 401(k) plan at work doesn’t mean that it’s a good one. While it can be argued that any 401(k) plan is better than none at all – let’s face it – there are some out there that are just plain lousy.

You can accumulate a decent amount of retirement savings even in a lousy 401(k) plan, but there’s no question that you’re missing out on the opportunity to do much better if only you had a better plan.

 

What makes a 401(k) plan lousy

There are a number of factors that can make or break an employer-sponsored 401(k) plan. Whether a plan is good, lousy, or somewhere in between really depends on a combination of factors. Some of those factors include:

• Low contribution limits. Maybe you have a contribution limit of only 8% or 10% of your annual income. If you make $40,000 per year, your contributions will be limited to somewhere between $3,200 and $4,000. That’s substantially less than what you can contribute to an IRA.
• High fees. The fund may include high investment fees, including steep transaction fees. There may be no options for no-load funds.
• Limited investment choices. Some plans offer very limited investment choice. In fact, some might have a single fund available in each of a half dozen categories. For example, there may be no funds available in various individual sectors.
• Poor investment choices. What investment choices are available, are in underperforming investments. There may also be the option to invest in company stock, which has not done particularly well.
• Single investment provider. The fund maybe held in a plan that only allows you to invest in the funds of a single investment broker.
• No company match. If in addition to all the above, the company offers no matching contribution, you may be in a 401(k) plan that is without redemption.

Few 401(k) plans out there incorporate all of the negatives above. But many include certain features that might make the plan particularly undesirable. If that is the case with your employer plan, what can you do to overcome it?

 

Maximize your contributions to offset poor investment choices

Since you may not be able to rely very much on strong investment returns – due to limited or poor investment choices – you might be able to at least partially offset this by maximizing your contributions to the plan.

Even if you don’t like the investment choices available, you can always put the money in something safe, like a money market fund, or a short-term bond fund. Even bad plans typically provide these options. The idea is to build up as much money in the plan as you can for the day when you will leave the company, at which time you can roll the money over into either a self-directed IRA, or a better 401(k) plan at another employer. With either choice, if you maximize your contributions to the plan, and invest the money conservatively, you’ll have a larger chunk of money to roll over into the new plan when the day comes.

This is not an entirely ridiculous strategy either. Very few people stay with a single employer for more than a few years. Either they quit and move on, the company has layoffs, or it’s bought out by a new company that will offer a new and hopefully improved 401(k) plan.

Maximizing your contributions – though they won’t grow through investment returns – will have you fully prepared for the day when that happens.

 

Start your own retirement plan

One of the very best ways to deal with a lousy employer sponsored 401(k) plan is to supplement it with your own plan on the outside. Generally speaking this will mean that you should open up either a traditional IRA or a Roth IRA.

Since you are already covered by a retirement plan at work, a traditional IRA may or may not be tax-deductible as far as your contributions are concerned. It will depend entirely upon your income level. Contributions to a Roth IRA, of course, are not tax-deductible at all. However any money that you place into either account will be allowed to grow on a tax-deferred basis until you begin making withdrawals in retirement.

One bonus of the Roth IRA or a nondeductible traditional IRA is that the contribution amount you have made to the plan will not be subject to taxation upon withdrawal.

But apart from the circumstances that may govern deductibility, either a traditional or Roth IRA is an excellent supplement to a poorly performing 401(k) plan. You can contribute up to $5,500 per year (or $6,500 per year if you’re age 50 or older). If you have a low contribution percentage available for your 401(k) plan, your IRA contributions can be higher than what you’re contributing to the company plan each year.

Most important, you can set up your IRA with the brokerage firm of your choice, allowing you to have the widest possible investment options at the lowest cost you can find. You can come to think of your 401(k) plan as primarily a cash accumulation account, while your IRA is your main investment growth account. When the time comes that you separate from your current employer, for whatever reason, you will have a waiting IRA to roll the 401(k) proceeds over into.

 

Start a side business and create your own 401(k) plan

One of the best ways to counter a lousy employer-sponsored 401(k) plan is to start your own side business, complete with its own dedicated retirement plan. You can set up a solo 401(k) plan, that will allow you to contribute up to $17,500 per year (or $23,000 if you’re age 50 or older). Best of all, with the Solo 401(k) plan, there is no contribution limit. You can make contributions on a dollar for dollar basis up to those maximums, before any percentage based contribution limits will apply.

And much like an IRA, the Solo 401(k) can be invested with the brokerage firm of your choice, and in investments of your choice.

There’s not much you can do to actually fix a lousy 401(k) plan, but there’s plenty that you can do outside the plan to compensate for it.

How about you all? What do you think about your employer 401(k) plan? If you don’t like it, what are you doing to overcome it?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6629001111/sizes/n/in/

Happy 4 Year Birthday to My Personal Finance Journey!

Happy Friday folks! Just a quick post here to announce that yesterday marked the official 4 year birthday of My Personal Finance Journey! Wooohooo! If my site was a child, he or she would be STILL be causing all sorts of mischief at this point! 

It all started 1460 (Wow! That sounds like a lot of days!) days ago with a simple little post about a $30 sign up bonus offer for the Chase Amazon Credit Card. Coincidentally, I still have that credit card and use it for all of my Amazon purchases. It provides a pretty nice cash back feature too.

Since that first post on January 16th, 2010, here at My Personal Finance Journey, we’ve had about 415,000 visitors and 1139 total posts (328 posts during 2013). It’s been a great ride, and I look forward to another successful year of learning and interacting with all of you.

Thanks again for all your support!

The journey has just begun…..

Jacob

***Photo courtesy of http://www.flickr.com/photos/girl_named_fred/57060927/sizes/l/

How To Talk To Your Spouse About Finances: What Is Their Financial Language?

The following is a guest post by MITM from Naked Budgeting. Enjoy! If you’re interested in guest posting on MPFJ, took a quick look at this post, then shoot me an email and we’ll get the party started! 

I was talking to a friend of mine at the park a year or so ago and mentioned that I was facilitating a Financial Peace University at our church.  I said he could join if he wanted. 

He said that they had plenty of money and weren’t worried about it.  I replied that that must help avoid any financial fights with your spouse.  He gave me a strange look and said, “Hell no.  We fight about money all the time.”.

I was surprised, but the lesson I learned was that success with money isn’t necessarily all about having more. 

My friend had plenty.  But, he and his wife hadn’t figure out how to not fight about it.  My friend’s solution was the math of having more.  But, it takes a different kind of math to keep the relationship side of family finances strong.

Whether you have a good relationship with your spouse around money or not, each of us has a “financial language”.

In my post about the financial statements, I talked about understanding how the financial statements work together is the foundation and after you have that understanding, a balanced approach is the key.  For instance, if you are really good at keeping expenses low but have no income, then you have no money to save.

So, increasing income AND lowering expenses is where the magic happens.  Same goes for the balance sheet assets and liabilities.  There has to be a balanced approach.

So, get to the point! What is this financial language?   Finance is about the math.  And they spend too much!

Okay, here is an example.  I’m always coming up with hair brained ways of making a little extra income.  I know my career is my biggest sources of income but I’m plagued with “What else can I do to make more on the side?”.  I even keep a running list of little business I’ve thought of and sometimes I prototype them or work on them and sometimes I don’t.  But my head is usually in the “Revenue” and “Assets” spaces.

My wife on the other hand glazes over when I talk to her about income or assets.  And for a long time I was frustrated by this.  She and I both want to be debt free and financial secure, so I thought it was strange that she didn’t want to make more money.

So I had to realize a few things about her in order to smooth out the conversation.  A psychologist would probably say that I had to understand her.  And they would be right!

 

Her financial language

1.) I realized was that she was much more focused on controlling expenses and risk.  Which included saving on monthly bills like energy and groceries (both on our monthly income statement).  But it also included reducing debt which does both because it lowers a monthly mandatory payment and our risk of default.  These are perfectly appropriate areas to focus on but they are just a few of the pieces to building a balanced financial approach.  My finance language is different, but together we can appreciate each other and manage the whole picture.

2.) I also realized that she is better at couponing and finding deals than I am.  It is one of her strengths.  On the other hand, she doesn’t want a big career and doesn’t think about buying cash flow assets or investing.  So that is one of her weaknesses.  Her parents saved throughout their life and socked most of it away in cash.  So investing was something they didn’t do or teach their kids.  Getting into rentals was a big fear for her but after we’ve done it for several years, she has come to understand that they have risk but there are ways to mitigate it and they can be good investment to help us in the long run.

Oh and just talking to her about anything like stocks or bonds is guaranteed to put her to sleep.  Believe me.  I’ve done it!

3.) I also had to understand her fears, hopes and dreams.  I thought I knew her but talking about these things in a financial light brought out all kinds of new things I didn’t know.

• Hopes and Dreams: She and I are aligned in that we want to eventually be financially free.  That doesn’t necessarily mean rich, but free to give and live.  Probably in that order.
• Fears: She is a stay at home mom, so I had to realize that she has some fears that if I was to pass away or be laid off she would be stuck with big monthly expenses and no income.

So, after many exploratory conversations and making plenty of mistakes I have a decent understanding of her risk tolerance, what parts of our financial picture she understands and is comfortable with, and her strengths and weaknesses.  I would say that her financial language is focused around expenses, debt, safety and security.  Mine on the other hand is on income and assets and taking risks.

Here are few tips to having those conversations

1. Listen

Not just to what they’re saying, but to what they’re feeling and thinking about what they’re saying.  And if you aren’t hearing it, ASK.  Sometimes when she talks about something in our finances, I’ll ask her about it.  “I wonder how our parents dealt with this?  Do you know how your parents did?”.  Understanding her financial upbringing makes a big difference.

2. Listen when you talk.

Huh!!??

Ponder this … “Communication only exists in the mind of the receiver.”  If you’re saying X and she’s hearing Y, then you’ve communicated Y.

So, do you understand how he or she is hearing you? When I talk to my wife about about something and I’m sensing that we’re not thinking about it the same way, I try to ask “What do you think about that?” or “How do you feel about that?”.

Are you getting the picture that listening is a big part of it.  You’re trying to learn about them!

 

Now comes the fun part!

• I can now look at our financial picture and put her in charge of some of the pieces.  We do it together but she has more responsibility for certain areas.  Because she has strengths I don’t have and I love it!
• We can talk about our financial picture in terms that she understands.  It avoids a LOT of miscommunication.
• We can coordinate our goals to work together because they have the same end result of building our net assets and achieving financial freedom.
• We can openly discuss our fears, worries, hopes and dreams.  Weekly budgeting meets can be open discussions about all of that.  And they deepen our relationship far beyond the financial aspects.

Here is our current financial journey summarized for the last few years and going forward.  See if you can pick out how I’ve had to learn how to adjust our approach to her.

First, we had to invest in the house.  She stays at home and had an equal vote in picking it.  So making it liveable was priority #1 and I working on making that happen during 2010 and part of 2011.

Second, we worked on building up our emergency fund of 6 months.  We did that in 2011 also.  So we had addressed two of her major concerns, secure home and cushion in case something went wrong.

Third, we wanted to pay down debt.  This was a bit of a negotiation because I wanted to start investing more.  So we settled on the goal of investing 15% of our income and funding our kids ESAs and after that using everything else to pay down debt.  We hit the 15% goal in 2013 and started paying down debt.  That is the stage we’re in right now as of the end of 2013.

Next step is that once we pay off debt our next goals are to invest in more rentals over time.  Debt will probably take us about  8.5 years, but hopefully sooner.

These aren’t just casual conversations.  We have a budgeting notebook that somewhere has a page outlining these goals.  Actually it is several pages because it took several conversations.

 

Questions to ask your spouse

1. What are you worried about when it comes to our finances?
2. What would you do differently if we had no debt and money to spend?
3. What do you want to do more/first?  Pay of debt or invest for retirement?
4. Would you be willing to work with me on setting some financial goals and learning how to achieve them together?
5. Do you have a good grasp or our finances such as how much we make and what our expenses are.  If not, how can we work on simplifying and learning them together?
6. If we managed our finances, what part would you like to be in charge of?  Expenses, saving for short term goals, tracking our emergency fund, tracking our debt paydown progress?
7. When we talk about finances how do you feel? How can I help improve that?
8. When I talk to you about finances or budgeting how can I improve?
9. Do you feel like we’re on the same page when it comes to our goals around income, spending, saving, debt?  Which one are we most aligned on and which one do we need to come together more on?

 

Feedback

Although I think we’ve made great progress in this area over the past few years, I don’t always get it right.

I’m always wanting to learn, so if you have any tips on what has worked for you, please leave your feedback by commenting below!