ConquerYourDebt.com

Trent over at The Simple Dollar recently ran a series of posts on saving x dollars per day for 2007, named from the president on each denomination of currency from $1 to $20. With current interest rates, and taking advantage of online promotion bonuses, you could save from $395.63 to $7435.99 in the coming year.

How much can you save per day? Follow the links below to see a month-by-month detail of how your savings grows over the year.

$1 a Day - The George Washington Plan
$2 a Day - Thomas Jefferson Plan
$5 a Day - The Abraham Lincoln Plan
$10 a Day - The Alexander Hamilton Plan
$20 a Day - The Andrew Jackson Plan

Pick a plan and do it!

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CNN ran a nifty story today on 5 mistakes to avoid with your 401k.

1. Not Participating
Get started today or as soon as you are eligible by contacting your benefits department.

2. Not Contributing Enough
As a rule of thumb, you should be contributing at least as much as your employer is offering a match.

3. Not Investing for Growth
For the most part, decent advice. However there should be some diversity in your investments. Plan administrators love tout the benefits of aggressive growth but often times the limited offerings within the plan make this a bad idea*. Look at the histories of funds available and make that part of your decision making.

4. Borrowing from your 401k
Again, plan administrators love to tout the ‘borrow against your 401k’ as part of their pitch because you are essentially paying yourself back with interest. Forget it. If you were to leave the company before the loan is repaid, the balance is due immediately otherwise you must delare it as a withdrawl and pay the taxes and penalties on the outstanding amount.

5. Cashing out your 401k
10% early withdrawl penalty and upwards of 40% in taxation depending on your tax bracket. Or better yet, look at it this way: if you were to cash out your 401k early, you can essentially kiss half of it goodbye.

*case in point, I was recently involved in the overhauling of a large company’s 401k program. The 3 aggressive growth funds they offered were dogs with poor return histories - even through the dotcom boom era - and lost more than their peers post-bubble burst. In addition, none have them have kept pace with the modest returns most aggressive growth funds have seen in the last 2 years. In the same plan, one conservative fund has seen 9% annual returns for the past 3 years.

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I frequently see the frustration in peoples’ eyes when they are living paycheck to paycheck and don’t know where to start when it comes budgeting and saving/investing. While I like to gear my advice to the younger generation in the hopes of getting them started on the right foot, I’m well too aware that there are plenty of people in my age bracket and older that would benefit from good financial practices and even get themselves back on track.

My biggest tip: Open a Savings Account. No matter what you think, unless you have a place to put your money that is out-of-site and out-of-mind, you’ll always find an excuse to dip into it. I really love the online accounts that are readily available these days, whether it be ING Direct, Emigrant Direct, or any of traditional banks who are now offering online accounts outside of their traditional market. Best of all, the online accounts typically have a 2-3 day lag time between your electronic transactions - which is usually enough to stave off any impulse temptation to withdraw funds.

Assuming you’ve got a place to stash your savings, here are some simple tips to start putting some money away.

1. Schedule a recurring deposit from your checking account to your savings account timed a couple days after each paycheck. Start small if you need to, but the key is saving that money when you get it rather than waiting to see what’s left over. Assuming you are paid twice a month, $25 per paycheck is $600/year.

2. Give up one of your vices once a week. Everyone has something they do regularly that they could easily give up once a week. One of mine is dining out for lunches during the work week at average of $6 per day. To make this work, the day you skip your vice, immediate push a deposit to your savings account for the money you would have spent. Smokers, skip a pack a week. I won’t lecture you on what you are already throwing away, as I was one, but I know there are plenty of smokes in a given week you waste. Pick a day to skip a pack and budget your smokes in advance to get you through. Social drinkers - especially my college readers - same thing, skip a night at the bar.

3. Getting a raise at work? For the first six months, automatically deposit the difference between your new check and the old check. You won’t miss your increase given you’ve been living on the smaller amount and after 6 months you’ll have seen enough of the results that I doubt you’ll stop.

4. If you have an Debit card and are going shopping, leave it at home and withdraw the cash from your checking that you plan on spending. When using plastic - be it a credit card or debit card - you are more likely to spend more than you intended vs. spending cash. When your shopping is done, deposit what is left of your budgeted cash.

5. Trim the fat. Everyone has a few expenses that aren’t being used that could be trimmed. Things such as premium movie channel packages on their cable bill, unused gym membership, a more expensive call plan on your cell phone than the minutes you are using, etc. Scale them back and deposit what you were spending.

6. If you are still using checks, when your record your payment in your check register, record the actual amount along with the payee on the payee line, but in your running balance, round the amount up to the full dollar. When you balance your check book each month, deposit your ‘change’ in your savings account.

Audience participation time, what tips and tricks do you have for putting away money?

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I have become convinced that while credit cards have become a significant burden on the general public, they aren’t the biggest obstacle holding people back financially.

I used to think that outside of the personal behavior, the credit card industry was the biggest culprit to those stuck in a financial rut. The average college student has $2700 in credit card debt the day they graduate (in addition to an average of $17,000 in student loans). But over the course of the last couple of months, I’ve changed my mind and would now put the automobile ahead of the credit card.

I’ve been volunteering my time to help others with budgets and financial planning and recently, over lunch with the dean of my alma mater’s business school, pitched him on the idea of a one-day seminar to give the soon-to-be graduates some real-world financial advice.

Considering this was held on a Saturday, was voluntary, and only mentioned in a business school ‘happenings’ newsletter, I would have been happy to get 10 people to show up. Much to my surprise, there were 29 students who showed up, with one brought her parents along.

While I was jived at the attendance, my informal (and obviously non-scientific) survey results are what surprised me the most.

Of the 29 students:
first, the credit card debt and student loans were in line with the national average - no surprise there.
- 17 had full-time jobs currently or lined up post-graduation.
- 14 mentioned the first thing they plan on doing is buying a new car when they start working post-graduation.
- 19 owed more on their car than they had in credit card debt. Only 4 did not have a car payment.
- 11 had a car 2 years old or newer.
- Of the 17 who had post-graduate jobs already in the bag, 3 owed more (via debt or total due on the balance of a lease) on their car than their pending annual salary.
- 6 had a higher monthly car payment than their monthly rent.
- Of those with student loans, less than 20% were thinking far enough ahead to budget for their repayment plans.
- Only 2 had a monthly budget
- 4 did not have any credit card card debt, 1 as the result of a bankruptcy in September of 2005 (at 22 years old)
- The combined monthly car payment of the 29 students in the room: nearly $6700 - an average of $230 per person ($267 when you drop the 4 who didn’t have a car payment).

Now here is the lesson for you:
If those 29 students each took that $230/month and invested only that much from now (at an average age of 23) until they are 60; at a very conservative annual return of 8% that would result in a nest egg of $600,000 at age 60. At 10%, a cool Million and change, and at a historical market average of 12%, nearly $1.7 million.

Think about that next time you even consider heading in to the car dealership.

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The LA Times reports on a growing, but highly risky, trend of using rising home values as an income source. As home values rise, homeowners are refinancing and pulling cash out of their homes.

As they happily watch their houses swell in value, Americans are changing their attitudes toward mortgage debt. Increasingly, a home is no longer a nest egg whose equity should never be touched, but a seemingly magical ATM enabling the owner to live it up or just live.

Homeowners took $59 billion in cash out of their houses in the second quarter, double the amount in the 2004 quarter and 16 times the average rate of the mid-1990s, according to data released this month by mortgage giant Freddie Mac.

People are cashing out so quickly that the term “homeowner” may soon be inaccurate. Fifty years ago, Americans owned, on average, three-quarters of their house and the lender owned the rest. These days, it’s approaching an even split.

My favorite part of the article though would have to be:

Such thriftiness has gone out of fashion. What was once considered undesirable — taking on large debt — is now seen as smart. And what used to be smart — becoming debt-free — is described as imprudent.

“If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years,” said David Lereah, chief economist of the National Association of Realtors and author of “Are You Missing the Real Estate Boom?” “It’s as if you had 500,000 dollar bills stuffed in your mattress.”

Subscribing to that link of thinking is only pushing the ‘montly payment’ life style. So why is this equity as income such a bad thing? One only needs to look to Friday’s statements by Alan Greenspan:

WALL STREET shuddered yesterday after Alan Greenspan, the United States’ central banker, warned American homebuyers that they risk a crash if they continue to drive property prices higher.

He said that the US house-price spiral had become an economic imbalance, threatening stability like the country’s trade gap or its budget deficit.

He said “history had not dealt kindly” with investors who kept ignoring risks.

Source: Times Online

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Judging from the ways people are finding their way to this site from the search engines, it seems that there are quite a few people who are in the same boat I was and looking for help in paying off their credit cards.

While the plan we used to pay off our debt is not rocket science, it did take a monumental change in our approach to money to even begin to think about our end goal.

The plan we used was based upon the book The Total Money Makeover: A Proven Plan for Financial Fitness.

In a nutshell, the plan is broken down into a series of baby steps.
1. While making minimum payments, put together an emergency fund of $1000 (essentially to break the cycle of using credit cards for emergencies).
2. List your debts from smallest to largest, pay the miniums on the larger debts and throw every dollar you can scrape together at the smallest. As you pay one off, move to the next debt in the list. (a series of small wins will give you a sense of accomplishment and keep you motivated).
3. When all of your debt except your house is gone, fully fund your emergency fund with 3-6 months worth of expenses.

The book then covers remaining steps for investing for the retirement, saving for college, paying off the house, etc.

On a side note, he also has a popular radio show. You can listen online, or download the previous two weeks of shows, or download a 1-hour commercial free podcast from the previous day’s show at: DaveRamsey.com.

There is also a support site for his book: MyTotalMoneyMakeover.com.

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Soon you’ll be able to get your credit report for free. A recent amendment to the federal Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies to provide you with a free copy of your credit report, at your request, once every 12 months, from www.annualcreditreport.com. The Federal Trade Commission (FTC), the nation’s consumer protection agency, has prepared a brochure, Your Access to Free Credit Reports, explaining your rights and how to order a free annual credit report.

A credit report contains information on where you live, how you pay your bills, and whether you’ve been sued, arrested, or filed for bankruptcy. Nationwide consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.

Consumers in Western states will first be able to order their credit reports under the federal law beginning December 1, 2004.

Free reports will be phased in during a nine-month period, rolling from the West Coast to the East beginning December 1, 2004. Beginning September 1, 2005, free reports will be accessible to all Americans, regardless of where they live.

Consumers in the Western states – Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming – can order their free reports beginning December 1, 2004.

Consumers in the Midwestern states – Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin – can order their free reports beginning March 1, 2005.

Consumers in the Southern states – Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, and Texas – can order their free reports beginning June 1, 2005.

Consumers in the Eastern states – Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia – the District of Columbia, Puerto Rico, and all U.S. territories can order their free reports beginning September 1, 2005.

How do I order my free report?

You can order your free annual credit report online at www.annualcreditreport.com, by calling 877-322-8228, or by completing the Annual Credit Report Request Form and mailing it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

When you order, you need to provide your name, address, Social Security number, and date of birth. To verify your identity, you may need to provide some information that only you would know, like the amount of your monthly mortgage payment.

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