Save yourself $100

It can be a little daunting to think about all your major savings goals at one time. There's the massive retirement fund that you want to build, which never seems to get big enough. There's the emergency account that should be filled with at least enough money to cover three to six months' worth of expenses. There might even be one or more college funds, assuming college doesn't cost an actual arm and a leg by the time the little tykes grow up. Add these all up, and we're talking about hundreds of thousands of dollars. Yikes!

Obviously, you can't save all that money tomorrow, so let's start small. Think in more humble terms, especially if you're not saving at all or you can't figure out why you're not saving more. Ask yourself how you could put aside just an extra $100 per month.

Saving an additional $100 a month means (obviously) you'll have saved an extra $1,200 in a year. If you had put an extra $1,200 in your child's college fund this year, it would be worth $2,263 by the time she heads to college. That assumes a pretty conservative 5% growth rate.

Let's say you saved that money for retirement and invested your $1,200 in a fund that tracked the performance of the Standard & Poor's 500 Index, which represents about 70% of all U.S. publicly traded companies. Buying an index fund gets you shares of some of the biggest companies in the country.

The long-term average growth of the market has averaged about 10%. If the market kept up that performance, the $1,200 saved by a 35-year-old today would be grow to $20,939 by the time that person retired at age 65.

So, there's plenty of incentive to figure out how to save that extra $100 every month. To get you started, here's a list of savings ideas that don't require any major lifestyle changes. You may have to do a little research, but you won't have to sacrifice your morning jolt of caffeine. Combine a few and you might hit $100 in savings without doing much at all.

• Contribute an extra 1% of your salary to your 401(k) or other workplace retirement plan. Because the money is withdrawn before taxes, you'll lose less than 1% from your take-home pay. You'll probably never even notice the money's gone, but your retirement fund will start to fatten up faster.

• Review your telephone, mobile phone, Internet, and cable service. If your mailbox is anything like mine, it's full of special offers and bundled packages. See if you can get a better deal than the one you have now. If you see a better rate advertised, try calling your current providers and asking them whether they'll meet the competitor's rate. While you're reviewing all this, cancel any flashy services or premium channels that you don't use.

• Call your credit card company and ask them to lower your interest rate. This could mean serious savings for anyone struggling to pay off a balance. (Your extra $100 should go straight to the credit card instead of going into savings, by the way.) If your credit company is hesitant to lower your rate, arm yourself with offers from competitors. You've probably gotten a bunch recently. If they won't budge, look for balance transfer options with lower rates. Before making any move, examine transfer fees and look at the interest rate that will be in place after any teaser rate expires.

• Reexamine your car insurance. Your policy probably renews automatically. If you haven't looked at it since you first signed up, see if you still need all the coverage you have. Consider raising the deductible. You can take that extra money and stash it in an emergency fund so paying the deductible won't be a problem.

• Stop heating the whole neighborhood. A little weather stripping and a programmable thermostat can go a long way to cutting the utility bills. They're cheap and easy to install, and they also save energy. Turn down the heat on your water heater if you have it set to "scald." Fix anything that's leaking. By the same token, shut down your computer at night and turn off the lights when you leave the room. (Yes, I know I sound like your nagging mother, but there's a reason she nagged you about this.)

• Cancel any gym membership or subscription you aren't using.

• Eat out of your pantry for a while. If you dig back there, you will find long-lost bags of pasta, cans of soup or beans, piles of rice. I, personally, have enough dry goods in my kitchen to feed the entire neighborhood for about a year. There's probably enough in your pantry to cut your grocery bill down significantly for a while. And, if you've been buying bottled water, consider switching to a filtered pitcher.

Hopefully, that will get you started thinking creatively about ways to fill your savings accounts without making radical changes. Then make sure to put that $100 in spare change toward your big savings goals.

Inflation should change your savings rules

If prices keep rising, you may need to think differently about a few things. Have you seen the price of milk lately? It's up 13% since last year.

The pain isn't only at the supermarket, however. Hospital costs are up 8%; gas, 33%; and prices overall climbed 4% (vs. less than 3% annually over the past decade). Plus, with the Fed pumping money into the economy, the price pinch probably isn't improving soon.

No wonder inflation ranked as the No. 1 financial worry in a recent poll. While we're nowhere near the 1970s - yet - it's a good time to review how inflation changes the rules.

Rule 1: You can lose by saving

A one-year CD now pays 1.97% a year on average. At 4% inflation, you lose 2% a year before taxes. Best strategy: Shop for top savings rates. Keep bond and CD maturities short.

Rule 2: Stuff beats paper assets...on paper

When inflation is high, tangible goods - gold, oil, gems, art, even wheat - tend to have an edge over securities, especially bonds.

Reason: Because of their rarity, beauty or usefulness, these items have an intrinsic worth that doesn't change, even as paper money loses value.

That said, the market's evaluation of their intrinsic worth varies wildly - for many commodities, it's dangerously exuberant right now. Also, the cost of insuring and maintaining things like art eats into any profits.

Rule 3: Fixed-rate debt is your friend

Here's why: You repay a fixed number of ever-cheaper dollars. Not so with variable-rate loans like ARMs, HELOCs and - worst of all - credit cards.

$4 per gallon! Time for some commuting tips

Just getting to work is getting more expensive. But there are ways to cut down on commuting costs. Here are some top tips on how to save while driving to work.

1. Calculate Alternatives

Do you know just how much money you're using by commuting back and forth to work?

The typical commuter pays over $200 per month just to get back and forth to work. That's over $2,400 per year, or put differently, the same as a $3,500 raise in your salary.

So, think about how much you would save by taking mass transit instead.

Check out this calculator from commuterchoice.com that let's you see what the cost benefit could be if you hopped on the train or the bus.

2. Improve your mileage

Getting the most out of your gas tank is a priority.

Here's how to do it:

First, simply maintain your car. One of the most important things you can do it to make sure your tires are inflated properly.

According to tests done by Edmunds.com, driving with tires underinflated by 25% caused a loss of fuel economy on an average of 3.75%.

If you have a roof rack that you're not using, take it down. It can cause a fuel loss of 1%.

And if you have a lot of junk in the trunk, make sure you get rid of it. That heavy load can really add to your gas bill.

If both spouses drive to work in separate cars, use the more fuel-efficient one for the longest commute.

3. Look to your employer

The federal and most state governments offer big tax breaks for commuters.

If your employer offers a flexible spending plan for transportation, take advantage of it. This program lets you put pretax money away for your transit passes or parking expenses.

And the money you contribute to this fund lowers your taxable income, so you'll be shielding the cash from Uncle Sam.

Make sure you ask your employer if this perk is offered.

4. Find a buddy

Driving to work may be a drag, but you can drastically cut down on your mileage by sharing the ride with a colleague or a buddy.

Sign up for the free service http://www.erideshare.com/ to find fellow travelers who are looking to connect and share rides.

You can also check out commuterchoice.com or your state's department of transportation for more information.

5. Call your insurance company

If you do cut your commute, let your auto insurer know.

You'll generally get a low-mileage discount if you drive fewer than 40 miles per day.

You may also be able to cut down on your mileage by pitching the idea of telecommuting one or two days a week to your boss.

Stimulus Payments to Go Out Ahead of Schedule

The federal government, eager to boost the flagging economy, will start distributing special stimulus payments Monday—four days earlier than expected.

"Beginning Monday, the effects of the stimulus will begin to reach households," President Bush said Friday. "This money is going to help Americans offset the high prices we're seeing at the gas pump and at the grocery store."

The department announced the early arrival of the payments Thursday after saying last month that it would begin sending out the money on May 2.

As of next week, 800,000 tax filers daily will begin to have their checks directly deposited Monday, Tuesday and Wednesday. No checks will be distributed Thursday, and 5 million payments will be made Friday.

The payments will go out ahead of schedule because of a new computer program that updates records daily—faster than an older program that updates weekly, according to Andrew DeSouza, a Treasury spokesman.

Overall, the Treasury will distribute more than $110 billion to 130 million taxpayers by July and hopes to get the first $50 billion out by the end of May, DeSouza said.

The checks are the centerpiece of an economic stimulus program signed into law by President Bush in February. The aim is to boost consumer spending and help mitigate problems caused by the slowing economy.

Checks are being distributed to people who file 2007 tax returns. Those who opt for direct deposit with the Internal Revenue Service will start getting payments before those who use the mail.

The program calls for rebates of up to $600 for single filers making less than $75,000. Couples making less than $150,000 would receive rebates of up to $1,200. In addition, parents would receive $300 rebates per child. Filers who do not owe income taxes but have at least $3,000 in income would get a $300 payment.

Payments to taxpayers slated to get paper checks will start to go out May 9—one week earlier than originally planned.

The order in which tax filers will receive their payments will be based on the last two digits of their Social Security numbers.

Under the government's economic stimulus plan, 130 million people will receive tax rebate checks for $300 and up, starting Monday. What do you plan to do with your check? How do you think the stimulus plan will affect the economy?

There is fear that many, many Americans will pay down personal debt (which will not act as an immediate stimulus to the economy). And that's what we're doing. We still have over $45,000 in Home Equity Line of Credit debt hanging out there. My wife and I are starting a business and have been using excess cash to fund that. Therefore, we haven't had as much cash to pay down the debt. When our $1,800 arrives, I'm paying down debt.

Which presidential candidate is best for your wallet?

Regardless of how much money you make, you have skin in this game.

The four leading presidential candidates say they're concerned about the taxes that Americans pay out of their paychecks. And they all vow to do something about it if elected.

Now with the economy at the forefront of the presidential campaign, the leading candidates' tax proposals will come under increasing scrutiny in the coming weeks.

Here's a look at some of the ways that Hillary Clinton, Barack Obama, John McCain and Mitt Romney would realign tax policies and how those changes could affect your take-home pay.

Keeping the tax cuts in place

One of the central questions is what to do about a series of tax cuts passed in 2001 and 2003 set to expire in three years.

The four candidates seem to agree on one thing: They want to preserve the cuts for low- and middle-income earners. Those tax cuts include lower rates, reduced taxes paid by married couples and a higher standard deduction.

But the Democratic and Republican candidates part company when it comes to upper-income earners.

Both McCain and Romney have said they would preserve the tax cuts for high-income earners - typically defined as households that make $250,000 or more. Clinton and Obama want to repeal them for taxpayers in that group.

Clinton also would reduce the value of some personal exemptions and itemized deductions for big earners.

Part of the rationale given for restoring higher taxes on upper-income households is that they benefited the most from the 2001 and 2003 tax cuts, and that continuation of the tax cuts for those at the top of the heap may force the government to raise taxes on everyone else or cut spending.

Those who oppose taxing the rich more note that the top 1% - taxpayers making more than $250,000 - already account for 40% of all federal income tax revenue. Taxing them more, proponents of extending the tax cuts say, may lower tax receipts because high-income filers will seek more ways to shelter their money from taxes.

New tax breaks

The candidates also have somewhat different ideas about what kind of new income tax breaks to offer.

On the Republican side, Romney has said he wants to permanently lower the rate on the lowest tax bracket to 7.5% from 10%. Currently that tax bracket applies to roughly the first $8,000 for single filers and the first $16,000 for married couples filing jointly.

And he has proposed permanently exempting workers over 65 from having to pay payroll taxes, which are used to fund Social Security.

McCain hasn't yet offered up any individual income tax breaks beyond proposing to make the 2001 and 2003 breaks permanent.

On the Democratic side, Obama would offer a tax break to seniors by eliminating their income taxes if they make less than $50,000.

Obama also would create a credit worth up to $500 per working person ($1,000 per family) to offset Social Security tax on the first $8,100 of earnings. The credit would start to phase out for people with incomes between $150,000 and $200,000.

Both he and Clinton have said they want to expand the earned income tax credit for low-income workers. And they want to offer an expanded saver's tax credit although in somewhat different ways.

Clinton would offer a savers' credit equal to 100% on the first $1,000 saved by married couples making less than $60,000, and a 50% matching credit for couples making between $60,000 and $100,000.

Obama would match 50 percent of the first $1,000 of savings for families that earn under $75,000.

New retirement tax bites

The candidates' tax proposals aren't all sugar. There are notable differences, for instance, in how they might treat payroll taxes in a bid to shore up Social Security over the long haul.

Obama would consider increasing the amount of wages subject to the payroll tax. Currently, the first $102,000 of wage income is subject to the 12.4% tax, half of which is paid by workers and half by their employers.

Obama has indicated he might favor lifting that cap but only after imposing a "donut." A donut would protect from the payroll tax a certain portion of wages above the current cap - for instance, wages between $102,000 and $202,000. But any earnings above that ceiling would be taxed.

It's not clear yet whether a payroll tax increase would be in the offing under Clinton or McCain, because both candidates have been spare on details.

Clinton has said she doesn't want to eliminate the cap on the income subject to the Social Security tax. But that doesn't necessarily rule out an increase in that cap or a higher tax rate.

McCain, meanwhile, has said he would prefer Social Security funding to be shored up by reducing growth in benefits rather than by raising the payroll tax.

Romney doesn't want to raise payroll taxes, but instead favors the idea of letting workers have individual investment accounts and fund them with money from the surplus paid into the system.

Clinton and Obama oppose the notion of diverting payroll taxes - whether from the system's surplus or direct from your paycheck - to fund accounts.

Don't rearrange your budget yet

Of course, campaign promises are often easier to make than they are to keep. A lot can come between a newly elected president and his or her ideas about taxes.

Political reality, for one. Just look at President Bush and Congress. Their inability to come to agreement has stymied decisions.

Then there's deficit reality. The budget that Bush submitted Monday projects a deficit of more than $400 billion. That could tie the hands of the next president to make tax changes.

Or consider the Alternative Minimum Tax (AMT). Everyone in Washington says they want to do something about the outmoded tax scheme, which was originally aimed at the rich but is increasingly hitting the middle class. But no one has an appealing way to pay for fixing it. The price tag for reform or repeal ranges between $500 billion and $1 trillion over 10 years.

"No one has really staked out a credible claim at fiscal responsibility," said Len Burman, director of the Tax Policy Center. "They'd just devote deficits to different purposes."

Confession – I am dipping my toe in the 0% balance transfer game

Well, I’ve done it. Something I said I would never do. Something I said was a complete waste of time. I’ve argued that it wrecks your credit score, and diverts your precious attention from investing, all for a few measly thousand bucks a year.

I’ve borrowed $22,000 on a credit card. And it wasn’t even a 0% card! And I plan on borrowing more!

The situation is as such: A little over a year ago, my wife and I assessed our lives and what was happening within our marriage. I was working 60-70 hours a week, often not even seeing my young daughter at all during the day – I’d leave early in the morning, and arrive home with her already asleep. My wife was working a job that was stressing her out too. She once quipped to me that she felt “like a single mom.” That was a real eye-opener – sort of a mix between a slap across the face, and a reality check.

We made changes. I accepted a job for less money that’s one mile from our house, and my wife went part time, which eliminated the most stressful duties of her job. We took a big financial hit, but it has actually increased our quality of life.

It has not increased the quantity of our portfolio, though. My investing goals have not changed (20% rise in net worth every year for the next 15 years), but it did slow us down a bit.

Then, my wife was pregnant with our second child, and it was time to ditch my old car. Time for a minivan. Back in February 2007, we purchased a used 2006 Honda Odyssey. I used our Home Equity Line of Credit to make the purchase. After trade in, it cost us $16,000. After borrowing on the HELOC, the balance was back up to $45,000. This balance consisted of the minivan purchase, a few home repairs we had made, and the down payment on our lakehouse (I still plan on posting about our October 2005 lakehouse purchase, and where it fits into our retirement plans).

The HELOC’s interest rate is Prime minus .01, or 8.24% at this time. As I am able to deduct this interest on our taxes, the after tax interest rate is 5.93%. That means right now, I’m coughing up over $300 a month in interest.

Not that this matters to the discussion, but I am completely comfortable with the portion of the HELOC debt related to the lakehouse. Trust me, this was a good investment, and is a blast to boot. I am less comfortable with the minivan purchase, even though the van rocks and really is a great way to get the family around.

Couple all of this with my desire to continue investing (it’s been going so well this year, why stop now?), and the fact that we’re not going applying for any large loans any time soon (no more apartment building purchases, one is enough – therefore, less of a need for a top-notch credit score), and it was clear to me – I have to get this debt shielded from interest.

Bingo – throw it on a bunch of 0% credit cards. The typical credit card arbitrager (is that a word?) is taking the cash pulled from their credit cards and investing it in a high-yield savings account. The highest online rate I’ve seen is 6%. By eliminating this monthly interest charge, I am in effect earning about 6%. Better yet, I can use that savings to pay down on the principal.

To fully shield us from interest, I need to get the full $45,000 onto credit cards. My first transaction involved a card we already held – a Bank of America Visa card. It’s one my wife held but never used. They sent us a letter stating that the credit limit had been raised to $18,000, and that a balance transfer or a cash advance could be done at 0.99% APR until November 2007. This included a max fee of $90.

I called and tried to get them to waive the $90 fee. They could not do that for me, but they did extend the offer until March of 2008, while raising the interest rate one one-hundredth of a point to 1.00% APR. They also raised the credit limit to $22,000. It had just been raised to $18,000 – why not raise it to $22,000?!?!?!?

So this was not the perfect deal, but there were some things to like about it. First off, I did not have to do a balance transfer, i.e., I did not have to already have credit card debt. Since I bank at Bank of America, they were able to wire the money right into my checking account. Second, the 1% interest rate is going to cost me about $18/month in interest – it’s not zero, but it’s not too shabby. Third, the $90 fee was more than I wanted to pay, but I calculated that by shielding this $22,000 from the high interest rate I was paying, I will have saved approximately $1,000 by the time March rolls around.

And besides that, I don’t plan on stopping. I am going to apply for a Citi card next, as I believe they will also send me a check (or wire me). Hopefully I can get the remaining $23,000 onto 0% cards, and then just keep hacking away at the principal, while also investing in our Roth IRAs.

And if it ever does come time to pay the piper, I have my HELOC checkbook. I write a check to the credit card companies, and we’re out of credit card debt.

Even my wife, who is a cautious cat, eagerly endorsed the idea. The HELOC debt bothers her. It bothers me, but to a much lesser extent. I have our net worth steadily on the increase, and this debt is manageable, so I’m not freaking out about it. But she wants to increase the pace with which we get it paid off, while I want to continue to invest while still paying the debt down. Not an argument, per se. She trusts me, and we’re doing well. But it surprised me how quickly she saw the wisdom in this credit card arbitrage plan of mine.

I’ll keep everyone posted as to how it goes, but I’m excited to get out from under this debt, and this plan should accelerate that. I welcome any comments or advice you might have.

Saving money for retirement - Part V

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the fifth pitfall that I believe you need to avoid on your road to retirement:

5. Buying more house than you can afford

Purchasing anything that's more than you can afford is obviously a problem! But purchasing a house that's more than you can afford is a real retirement killer. That runs counter to the idea that your house can actually be a vehicle to drive towards retirement. I argue the opposite - that you should buy a house well within your means, or even below your means, while still meeting your day-to-day needs. Then, as previously espoused, pay your monthly payment each month, do not prepay on principal, and stash the remaining money in the market.

I also have an extensive post on this subject here.

Simply put, it is much more difficult to get your retirement money out of a house than it is a retirement fund. For one thing, to get your retirement money out of your house, you yourself might have to get out of your house! Unless you plan on using a reverse mortgage, you'll have to sell your house and downsize, and I don't think many people understand how that's going to make them feel in the future.

Even I am somewhat guilty of this. We bought a lakehouse back in 2005. A small little place, but still so much fun. With our primary residence and our lakehouse, we're still living below our means and are able to save for retirement each month. But, one of the justifications in my head for the purchase was, "I'm young, I should just do this now. If I get to retirement age and I don't have enough saved up, I'll sell the place." Yeah right, I love that house! I love drinking beer by the lakeside, I love canoeing, playing the bimini ring game I set up, playing ping pong, and on and on. It's a blast - I will post some pictures sometime. Needless to say, I'm going to make damn sure I have enough retirement assets such that I'll never have to sell the place.

I have previously advocated buying a house instead of renting, and I still believe that. But I do not recommend "stretching" when purchasing your house. Find the house that's right for you, that you can fall in love with. But don't overpay, and never live beyond your means.

Saving money for retirement - Part IV

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the fourth pitfall that I believe you need to avoid on your road to retirement:

4. Accumulating credit card debt/not getting credit card debt paid off.

Every dollar of credit card debt you have means you're paying interest instead of investing for your retirement. Hopefully you at least own nice things as a reward for being in credit card debt! This is probably the most damaging thing you can do to your financial future. If you end up spending several years to get out of credit card debt, that's several years you could have been investing. And as I showed here, every year counts.

If you are in massive credit card debt and are looking for a way to lessen the blow of those interest charges, I would actually recommend procuring some 0% interest balance transfer credit cards. Yes, get more credit cards! But this time, you're doing it for a good reason. Five Cent Nickel and My Money Blog both have extensive sections on 0% balance transfers. Transfer credit card debt to these, and you'll shield yourself from further interest. Use the money you would have been paying to interest to pay down the principal. DO NOT go spend that money elsewhere!

I would also recommend, if possible, opening up a Home Equity Line of Credit. I pay 8.24% on my HELOC right now, and that is not only lower than the interest rate on most credit cards, but the interest is tax deductible (to me, at least, since we itemize). I would recommend this route if you are unable to open up additional lines of credit that offer 0% balance transfers. I would even recommend it if you don't itemize, since the interest rate will likely be lower than your credit card interest rate. But again, if you are successful in applying for new 0% balance transfer credit cards, that would be the more economical route to go.

Finally, if you cannot discipline yourself to avoid spending on your credit card, get rid of that card! Cut them all up. Yes, forgo those free points, cash back, or airline miles your card pays you. Forget those perks - you are spending more money on interest than you're receiving back in rewards. And I'm speaking to the people that eventually get that debt paid down to zero, only to rack it up again. Without serious discipline, you may fall in the same debt trap you just dug yourself out of. Ditch the cards if you can't control yourself.

The rich don't save either

As part of my "Save For Retirement" series, I am obviously poking and prodding you to save for retirement! The goal is to get to a point where you're rich enough to stop working, do what you want to do with your time, and have financial security no matter how old you live to be.

Should rich people save money? "Rich" is obviously a relative term, but I would say that the rich should at least maintain a certain level of net worth and not ever see it go down year-over-year. I've often thought that's how I'd handle myself if I won the lottery. In order to avoid become one of those boobs that squanders away the entire prize, I came up with this - If I received $20 million or so in cash after taxes, my pledge would be to only grow my net worth each year, and never see it go below $20 million due to frivolous spending or careless investing. Perhaps a good way to live anyway, huh?

Not enough Americans are saving for retirement. However, I read this article on how the rich aren't really saving either. In fact, a full 34% of people earning over $250,000 said that paying everyday bills was an obstacle to saving. And 49% say they're not saving more because they just "want some spending money." I suppose once you're earning $250,000 instead of $50,000, your lifestyle gets ratcheted up 500% as well!

Save money for retirement - avoid these pitfalls! Part III

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the third pitfall that I believe you need to avoid on your road to retirement:

3. Counting on an inheritance

There is a danger in changing your current saving and investing behaviors because you think you may inherit some money. This is terribly dangerous - there are so many things that can happen that could reduce your prospective inheritance to zero. Your parents could get sick and be racked with medical bills, or even long-term care bills. (My grandpa paid $5,000/month to be in a nice long-term care facility. Ouch!). They could live to age 100 - I'd be 75 by that point! I'd better have my retirement secured all by myself by then! They may end up deciding, through dementia or not, that it's their money and they're going to spend it how they see fit. They could get scammed out of the money. They might decide to give some or all of their money to charity. And due to any of these above reasons, they could end up running out of money, which could potentially have you supporting them during their final years.

Wow, lots of ways to have that inheritance slip through your fingers, huh?

Here's my situation. My parents are in their early 60's. My dad is retired, while my mom works 4 days a week. They have about $1.5 million. My wife's dad died penniless (very long story, he had millions, bad things happened). Her mom has a few hundred thousand maybe, maybe half a million, and owns two houses outright. Beyond that, it's hard to pinpoint how much she has. My wife's aunt and uncle, neither of which had children, own two farms totalling 200 acres, and also own 5-10 rental properties, some outright and some with mortgages. They live very frugally and have done very well for themselves. Their money, along with my mother-in-law's money, would be passed down to my wife and her two brothers. My mother-in-law has a will, while I don't think the aunt and uncle do. The ownership structure of these farms and rental properties is unclear to me - they do not keep airtight books (nothing illegal, they just sort of fly by the seat of their pants).

We're talking about a few million bucks in play here. I hope I never inherit it, which means that everyone lives to a very ripe old age. But if some of them should die before me, I cannot tell a lie - it would be nice to inherit some of that money. My $210,000 net worth could use a shot in the arm, right? I have to admit that I think about it sometimes.

But it is nothing I can count on, and I know with my current plan, I can get to retirement without inheriting any money. Put together a plan that can do the same thing for you.

Save money for retirement - avoid these pitfalls! Part II

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the second pitfall that I believe you need to avoid on your road to retirement:

2. Believing it's OK to start investing later in life - waiting to begin saving.

You've heard it said a million times - the magic of compound interest is the key to amassing the money you need for retirement. Still, many people, for many reasons, delay saving until some time later in life. One reason might be that they have material things they'd rather spend the money on now. Another related reason might be a general lack of discipline with regards to money. Still another related reason might be a lack of a vision for the future, a lack of a plan for retirement.

My favorite reason for delaying retirement saving is psychological - "I'm young, I can only save $200/month, and that's nothing! I'm not going to get anywhere saving $200/month - why even bother????? I save $200/month, and I end up with a measly $2,500 or so after a year? Big whoop."

As I am a CPA, I turn to my trusty spreadsheet - run one using the scenario of your choice and amaze yourself with the results.

Here's mine: imagine you're 25 and you begin investing $200 a month, assuming an 8% return per annum. With annual compounding (not monthly), you end up with $728,000 by the time you're 65. $200 a month, a conservative 8% return, and you have over $700,000. Keep in mind that the average return of the stock market is over 10%, and you're very likely to be able to save more than $200/month as you age and advance in your career.

Now, assume that you wait until age 30. You wait just 5 years. That's a cumulative $12,000 over 5 years that you did not invest. Instead of $728,000, you end up with $485,000 at age 65, or $243,000 less than if you had started at 25! Holy crap, what happened? Simple - thru this so called magic of compounding, it is beneficial to have your money grow for 40 years instead of 35 years.

What if you wait until 35? At 65, you end up with $320,000, or $408,000 less. Wait until 40, you end up with $207,000.

These results are OK if you want to work well into your 80's! But if you're like me and want to retire in your 50's or 60's, you simply should not wait until your 30's or 40's to begin investing.

What if you do wait? Let's say you wait until you're 40, and you want to get to that $728,000 nest egg that you would have had if you had started saving at 25. You would need to sock away $700/month instead of $200. For many working professionals, this is entirely possible. But why bother waiting? If you're able to start saving earlier, no matter how much it is that you can save, it only makes that retirement pile of money bigger.

Here's my favorite scenario that I use to encourage young people to invest - start at 25, invest $300/month in the stock market. You cross the million dollar mark at age 64. It can happen, if you start early and prove yourself a consistent saver.

Save money for retirement - avoid these pitfalls! Part 1

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the first pitfall that I believe you need to avoid on your road to retirement:

1. Don't prepay on your mortgage.

I expect heat for this, especially since I once was making prepayments on our mortgage. And I would actually encourage a discussion amongst my readers - if you disagree, or if I'm making any specious arguments, please let me know!

If you have excess cash each month, you have a choice. You can prepay on your mortgage, you can invest the money for retirement, or you can do a mixture of the two (or you can spend it willy nilly, not a choice for Q!). Here is what you need to know: investing for retirement should be the winning choice if you can invest the cash for a rate of return greater than what you would save by paying off the mortgage early.

For example, I have a 5.5% 30-year mortgage. We currently itemize on our taxes due to the large amounts of interest we're paying on two mortgages (principal residence and lakehouse). Because we itemize, we get a tax break on this interest. I believe we're in the 28% tax bracket, so the net damage to our finances due to paying interest on our mortgage is actually about 4%. So I am in effect earning 4% on any money I place towards prepayments on our mortgage. As we lose the ability to itemize (not sure when this will happen, but it will happen), my return would them shoot up to 5.5%.

Can you beat 5.5% by investing your excess cash instead? Currently, it couldn't be any easier! An FNBO Direct Savings Account will do the trick. If you decide to lift a finger and put even a little effort in to investing the money, you should be able to earn 8% a year. If you get aggressive, you can probably average a 10% return a year (reduce this rate of return if in a taxable account, do not reduce the rate of return if your retirement funds are in a Roth). Heck, I don't think it's sustainable, but my basket of small cap stocks earned 32% in the last year, doubling the return of the S&P 500. (Lord, why isn't that sustainable?!?!?)

Clearly, investing your excess cash is the winner. When running the numbers on yourself, your percentages will obviously vary based on your mortgage interest rate and your tax bracket. But in most cases, you should be able to generate a higher return by investing than in owning your house more quickly. A 10% return wallops a 4% return! For example, on $50,000 invested in year 0, with no further monies invested, an annual 4% return would leave you with $162,000 after 30 years. A 10% annual return would leave you with $872,000. To quote Shaggy, "ZOINKS!" Another eye-opening example is down lower in this column.

Therefore, risk factors and all other things being equal, always choose the higher rate of return.


Why, then, do people choose to prepay on their mortgage?

1. I don't want to pay all of that interest. If you run a 30-year amortization table on your mortgage, you will see some scary dollars going to interest. I have always gone to Karl's Mortgage Calculator to run numbers on various apartment building scenarios. Plug some numbers in and look at the damage. A 30-year, $300,000 mortgage (assuming 20% down, this is a $350,000 house) will have you shelling out $347,515 in interest over 30 years - equal to the price of the damn house! But, if you prepay just $500/month, you will shave off $161,000 in interest. Sounds great, right? Instead of thinking in dollar terms, you have to think in percentage terms. $161,000 in interest savings sounds great right now because we're all dirt poor! But, if you invest that $500 a month and achieve a 10% rate of return, you'll have $996,482 in 30 years - almost $1 million! Here's the deal, plain and simple -- Don't live in a large house with massive mortgage payments unless you can afford it, get the lowest mortgage interest rate you can, and then don't pay attention to the raw dollars in interest you're paying because it will mess with your head.

2. I want to be free of my mortgage payment. It's the largest monthly expense for most people. Once your house is paid off, you're free. Waaa-hooo! I will not lie to you - it will be a grand day when my house is paid off. But I will not be free. I still need to invest my way towards retirement. Then I will have to navigate my way through an uncertain future, making sure I have health insurance, paying for college for two kids (should my wife and I wish to do that), and paying for two weddings. Ugh! Look at it that way, and realize that your house is not a vehicle to drive towards retirement. A very fat brokerage account is what you need.

3. How could it possibly be good to keep debt around? That's not what the experts say! It does seem counter intuitive to keep debt around, especially just so you can get the mortgage interest deduction. Of course, as demonstrated above, you're not keeping the debt around because you like it, and you're not keeping it around for the tax deduction. You're keeping it because you wish to continue to live in your house, and there is a demonstrably superior place to apply your excess cash.

Part deux to come. Continue saving!

Saving money on car insurance...

By switching to Geico? Hahaaa, maybe. But not the subject of this column.

Why are cars and everything related to them so confusing and painful to deal with? To wit:

1. Buying a car is usually a painful experience, unless you enjoy cutthroat negotiation where you rarely have the upperhand (especially if you get emotional about cars like me.)

2. Then you have to title a car, and get plates, inspections, and pay taxes on the car. I've always wondered why it can't be as simple as buying a TV. I don't have to title my TV.

3. Then the car depreciates quickly, especially if you bought new.

4. Then it breaks down. If you don't know anything about auto repair, you take the mechanic's word for it. I am positive I've been jacked around on an auto repair before. And if you're a woman, some mechanics will really take advantage of that.

5. Finally there's auto insurance - comprehensive this, collision that - one ticket and your rates go up. Insurance salesman are not a whole lot better to deal with than the car salesman you bought the car from - maybe a little better.


There are some ways to save on your auto insurance. Below are some tips:

1. Be a good driver. Bad drivers pay more. If you have an accident that's your fault, you can expect your rates to go up as much as 40%.

2. Don't let your friend drive your car. If he crashes your vehicle, you will have to file this through your insurance company, and your rates will go up. If your friend was uninsured, bad news... if he injures another driver, that driver can come after you for medical bills, etc.

3. Check for installment payment fees. Your insurance company may offer you the ability to pay for your insurance on a monthly, quarterly, or semi-annual basis. They can even withdraw the amount from your designated bank account via ACH. However, they may charge a fee for this, so check with your agent. I have my premium ACH'ed from my account monthly, which really helps for personal budgetary purposes. However, I do pay a fee. If you want to avoid such a fee, pay your annual premium up front.

4. You may not owe sales tax on a replacement vehicle. You will have to be proactive and ask your agent about this, but 28 states require insurance companies to pay the sales tax when you replace your totaled car. The states are Alaska, Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Kentucky, Maryland, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Vermont, Washington, West Virginia and Wisconsin.

5. Wait to add your teenager to your insurance until he or she is licensed. You do not need to add a young driver to your policy until they are actually licensed to drive. Of course, until they are licensed, keep them from getting behind the wheel. (I am guilty of this, when I was 17, I took my 12 year old brother driving in the cemetary. He got alot of driving practice before he turned 16! My mom was taken aback at how good he was).

6. When switching insurance companies, be sure to officially cancel. You cannot cancel by simply ignoring the next invoice. They will cancel your coverage, but that non-payment will be a blemish on your credit record. Call your agent and provide the date and time you wish to cancel. They will often send you a form already filled out - sign, date, and send back.

7. You will pay less for auto insurance if you have good credit. Huh? What's the connection? This is quite controversial, but studies have shown a direct correlation between your credit score and your propensity to file a claim. If you sign up for auto insurance, there is a high likelihood that the insurance company will pull your credit report. They use it to create an "insurance-risk score," which is one factor in determining your rates. So, if you have a low credit score due to late payments or credit card arbitrage/Apporama/0% balance transfers, you may be paying more for your auto insurance.

Young people with money and their leeching friends

Imagine you're a 20-something successful lawyer, and you happen to be earning an annual salary that dwarfs those of your friends. What typically happens when you're out for a night on the town, and the check arrives? Well, either your friends kick in their portion of the bill, or they look to you to cover it.

Why would they look to you to pay their bar tab? As the person at the table with the greatest means, you'd have the greatest ability to pay it without feeling the financial impact. After all, you're earning all this money, while your friends are still 20-somethings with low-paying jobs (if they have jobs at all).

Moving from this phase of your life to one of financial maturity can be a very awkward time for young people, especially young people that happen to earn much more than their long-time friends. Along with spiritual maturation, having kids, and the like, financial maturation can test friendships and put a real strain on old relationships.

If you're a young person achieving more (at least financially) than many of your friends, you may feel a sense of obligation to those friends for sticking with you throughout your rise to the top. More likely, they may feel a sense of entitlement for cheering you on during that rise.

It's very similar to what I call the "Lottery Syndrome." Have you ever noticed that folks that earned $10 million through business ownership are bothered alot less for money than folks that won $10 million through the lottery? For whatever reason, many of those lottery winners feel compelled and are almost excited to respond to these overtures. "I'm going to do something with my money." At the same time, the business owner has quietly put a financial plan in place, not in any hurry to start doling out money (while hopefully giving to favorite charities over the years).

How to keep the friends you want and at the same time maintain sane, mature finances?

First off, be understanding of friends that don't have as much money as you. If you don't want your friends to expect you to pay for dinner, don't choose an expensive restaurant to dine at. Dine where your friends would dine. Maybe this is not your lifestyle anymore, but you can hardly expect your less wealthy friends to be able to pay for an expensive meal just because that's what you can afford. Second, you hopefully have friends that will be understanding of your situation. I have some friends that make more than my wife and I do, and we've simply had to say "no" a few times. Finances were tight, I had investing goals for the month, whatever the reason. I just had to say, "No, we can't join you tonight, money is tight." Finally, you hopefully have a group of friends that are not just hanging around you for the money. But if you do, you may feel forced to realign your relationships. Or put another way, ditch some of those so-called friends.

How to use less gasoline

The price of gasoline has just hit a new all time high. Luckily, Q has a 3 mile round trip commute to work, and Mrs. Q only works Thursdays and Fridays. I have driven 30 miles a day for previous jobs, and I know some would scoff at that amount of driving as nothing. Supercommuters with daily round trips of 100 miles or more must be getting killed by these gas prices.

How to consume less fuel? CNN Money had a story on "4 gas-saving myths" that dispelled several popular notions about how to use less gasoline.

THE MYTHS:

1. Additives. Not only do the liquid additives, pills, and magnets not really save much fuel, they cost money to use, thereby eliminating most if not all savings you realized by using them.

2. Don't use your air conditioning, but don't roll your windows down either. Running your A/C is a gas guzzler, right? And putting your windows down makes your car less aerodynamic? Not exactly true. In fact, during summer months, it's better to have your windows down in the city with no A/C, while rolling up your windows and running the A/C on the highway.

3. Fill up on Wednesday. Prices will have come down from their weekend highs. Not exactly so. Prices may be higher on the weekend, but there is no ideal day during the week to purchase gas. The price of gas fluctuates due to numerous external factors (station owners, refinery capacity, Middle-East tensions, etc).

4. Starting your car consumes lots of fuel. Not so for new cars. Fuel-injected cars do not use an inordinate amount of fuel when starting up. I do not agree with the notion that if you're sitting in a drive thru for 30 seconds that you should turn off your car. Too much of that and you're likely to wear out your starter!


So how can you really save on your petrol bill?

1. Inflate your tires to the proper PSI.

2. Do not unnecessarily haul around extra weight.

3. Use cruise control on longer highway trips.

4. Do not drive a gas-guzzling vehicle. We own a 6-cylinder Honda Odyssey, a vehicle that shuts off three cylinders when the engine is not being pushed too hard. It does not matter how I drive this thing - it sucks down the fuel. I love the vehicle for its versatility and know it will make hauling around my two daughters much easier, but it is a gas guzzler.

5. Drive slowly! No drag races off the line. No lighting up the tires for you youngsters! And when driving in city traffic, do not unnecessarily accelerate to the next stoplight. Driving the speed limit is very annoying and just seems too slow sometimes, but you will consume less fuel.

Summer car deals are right around the corner

With gas prices approaching $4/gallon and auto inventories creeping up, we are due to see the big auto incentives return this summer.

If you can avoid spending money on a car, please do so. Automobile expense is typically the second highest monthly expense for families, and it can even be #1 if you have two car payments! Automobiles are net-worth killers. If you have to buy a car, buy used - you will save thousands. But if you can continue to drive the car you already have, do it - the effect that saving (and investing) this money can have on your future portfolio is truly amazing.

Also, if you're able to pay cash for a car, that's fine. If you have to borrow, either get a great financing deal, or use your Home Equity Line of Credit (HELOC). Using HELOC money will make your interest tax deductible.

The Holy Grail of new car financing - 0% for 72 months - is coming back. It makes it super tempting to head to the car dealer, doesn't it?

A related article is posted at Yahoo Finance.

States with the priciest speeding tickets

If you've got a lead foot and a fast car, and you just can't help but break every speed limit, beware! MSN recently had an article on the states with the priciest speeding ticket fines.

First off, in the interest of frugality, driving slowly can be a real boon to your finances. Less wear and tear on your car and your tires, and better gas mileage. You can also avoid costly speeding tickets, and costly trips to an attorney if you decide to get your ticket fixed. I received two speeding tickets in two months right after turning 16. In the last twenty years, I've received two more tickets, both of which I got fixed. I now tend to drive very slowly, which isn't hard to do when you're driving a 4-cylinder RAV4. Having a little girl in the backseat tends to have you driving a bit safer, too.

Have a look at the list, and slow down in Illinois, Georgia, Nevada, New Hampshire, and North Carolina. Missouri and Nevada even have 6-month jail terms awaiting you. Please do not mouth off to your ticket-writing police officer, I guess!

The upsell - you can say no, save your money!

Have you ever called Customer Service at your bank or credit card company, only to find yourself in the middle of a sales call? Several months ago, I had to call American Express to dispute a charge - I purchased a Nikon D50 digital SLR from an unscrupulous NYC camera outfit, only to receive a gray market version - a camera built for the Japanese market! Needless to say, I was furious, and instead of trying to negotiate with the folks at this company, I disputed the charge immediately (AMEX is extremely helpful in this regard). Five minutes into the call, I'm being offered fraud protection, travel programs, etc etc.

There was an article recently on MSN Money entitled "Just say no to the upsell," and its premise was that companies find it much easier to sell additional services to their existing customers than to spend marketing dollars chasing new customers. Back in high school, I worked at JC Penney in the mens' dress shirt department. Upsell! My boss would say, "Q, if someone is looking for a dress shirt, upsell them. Show them a tie that nicely complements their shirt purchase. Take them to belts. Perhaps they need a handkerchief."

Everything is a commercial now - sales pitches are all around us (many of these blogs, including this one, are loaded with ads). Where there was once outrage and disdain among Americans regarding this saturation of ads, there is now a dull, numb acceptance. And it is not exclusive to the U.S. Whereas our baseball and football uniforms are free of advertising (except the occasional Nike swoosh), European soccer teams' uniforms are adorned with ads.

The upsell barrage continues because it works. And when an upsell is successful, the margin is usually fat. But, did you really need what they sold you? During a time of distress, like calling your credit card company to report a stolen card, an offer of credit report monitoring might make sense (while at the same time striking you as horribly opportunistic). I had some trouble with my DirecTV service - first time in 7 years I had a problem of any kind. The phone rep sold me hard on the service plan, which for xx dollars a month would make service calls free. I never had a problem in 7 years, and it's their satellite service that's broken, not mine. I kindly talked them into fixing it for free, and asked them to keep their service plan.

Many consumers feel obligated to listen to these prewritten scripts, and some even feel compelled to buy. You do not have to buy, and you do not have to listen! You can even remain polite while regaining control of the conversation (I am unfailingly polite on the phone, Mrs. Q even laughs about this). Your time is precious, and you don't have time to listen about the latest gizmo guaranteed to enhance your banking experience. You may wait until the schpiel is over, or you may kindly interject.

"Sir (or ma'am), I have something cooking on the stove, may we please complete our business here?"

"Sir, I have to put my daughter to bed, may we conclude our business?"

Please do not feel compelled to buy - your bank, credit card company, etc - they are there for you, not the other way around. Any money you spend on an upsell could be invested for retirement. Save your money.

Lower your gasoline consumption

Yahoo Finance recently posted an article on how to lower your gas consumption. My offices are directly across the street from a Phillips 66, so we can watch the price fluctuate (GO UP) every day of the work week. The other day, regular unleaded went from $2.96 up to $3.16. I was over there filling up before work, and I saw a woman there that works with me. She is a young black woman, drives a really big old Caprice, and since I'm Controller of the organization, I know that she barely makes $20,000. I asked her "How much does that thing hold?" She wasn't sure of the tank size, but she said it cost her about $70 to fill up. She also said it only runs on premium, and that was $3.36 a gallon.

She lives quite a ways away from work, too. I live 1 mile from our offices, so I don't burn thru alot of gas. Nevertheless, there are some things you can do to save a bit on gas:

1. Walk! I should be doing this. I need the exercise, and I could go an entire week without driving. But I usually just want to get to work and get as much done as possible, so I don't feel like setting aside the 20 minutes to walk to work.

2. Buy cheap gas. Some cars simply require premium. Funny, my lawn more runs like crap if I don't use premium. But neither of our cars require it, so we don't use it. Read the owners manual for direction on this.

3. Drive slowly. You are not Mario Andretti, and it's not a race. Take off slowly from a dead stop. Not only will this save gas, but you will save your car from wear and tear.


The article outlines quite a few more tips. I am very concerned that our economy will not be able to absorb $4/gallon prices this summer - not to mention my weekend trips to the lake are suddenly going to be super-expensive!