PMW Says . . .

[ProfMoneyWise]

PMW Says: This week I'll share a story I have always liked and thought those that follow here will like as well. Enjoy.

The Story of the Mexican Fisherman

An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, "only a little while."

The American then asked why didn't he stay out longer and catch more fish?

The Mexican said he had enough to support his family's immediate needs.

The American then asked, "but what do you do with the rest of your time?"

The Mexican fisherman said, "I sleep late, fish a little, play with my children, take siestas with my wife, Maria, stroll into the village each evening where I sip wine, and play guitar with my amigos. I have a full and busy life."

The American scoffed, "I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually New York City, where you will run your expanding enterprise."

The Mexican fisherman asked, "But, how long will this all take?"

To which the American replied, "15 - 20 years."

"But what then?" Asked the Mexican.

The American laughed and said, "That's the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions!"

"Millions - then what?"

The American said, "Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siestas with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos."

Happy Labor Day Weekend fellow DEBT-FREEDOM'ers!

 

[ProfMoneyWise]

PMW Says: Use reality as your guide. Not your friends reality, not TV's reality, but your reality. What someone else has, or needs, does not necessarily dictate your requirements.

PMW Says: If you can think of it then you must plan for it.

PMW Says: The beauty about setting aside more than you may need is that if you do not spend it, it is still yours.

PMW Says: The last time you want to be going into debt is in an emergency. The last time you want to be going further into debt is when you knew better.

PMW Says: Peace of mind can be purchased by realistic planning.

If you live apart from family do you have a "I must get there quickly" fund? This is often overlooked by even the best of personal finance plannners. Many get into the mode of putting things like this in the Emergency Fund Category. I like to put it into the "It has a good chance of happening so I must plan for it" category.

What constitutes an emergency for you may not be one for your frient so don't use his/her reality as your guide. If you are apart from family then scooting out of town for you and yours quick is in the cards where the person next to you may not have the same requirement.

Use your reality as your guide. I can't tell you what kind of funds over and above your normal three to six months of living expenses Emergency Fund to have but I have found that if I think I may need it then I acknowledge it has enough of a chance of happening for me to think of it so I put money aside and buy myself peace of mind.

 

[ProfMoneyWise]

PMW Says: Oh don't get all excited. All you did by consolidating was move the debt around a little. The key is after you move it to pay it off and not run those cards you moved it from right back up to where they were. You do that part then I'll pat you on the back.

(Following taken from Dave Ramsey Homepage - daveramsey.com)

Myth: Debt consolidation saves interest, and you have one smaller payment.
Truth: Debt consolidation is dangerous because you treat only the symptom.

Debt consolidation is nothing more than a "con" because you think you've done something about the debt problem. The debt is still there, as are the habits that caused it – you just moved it! You can't borrow your way out of debt. You can't get out of a hole by digging out the bottom. True debt help is not quick or easy.

Larry Burkett, noted financial author, says debt is not the problem; it is the symptom. I feel debt is the symptom of overspending and undersaving. Our financial coaches will not recommend debt consolidation for a client. Why? Because debt consolidation doesn't work.

Debt Consolidation Statistics
A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78% of the time, after someone consolidates his credit card debt, the debt grows back. Why? He still doesn't have a game plan to either pay cash or not buy at all. He also hasn't saved for "unexpected events" which will also become debt.

Debt consolidation seems appealing because there is a lower interest rate on some of the debt and a lower payment. However, in almost every case we review, we find that the lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment, but if you stay in debt longer, you pay the lender more, which is why they are in the debt consolidation business.

Debt Consolidation Example
For example, let's say you have $30,000 in unsecured debt, including a two-year loan for $10,000 at 12%, and a four-year loan for $20,000 at 10%. Your monthly payment on the $10,000 loan is $517 and $583 on the $20,000 loan, for a total payment of $1,100 per month. The debt consolidation company tells you they have been able to lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Sounds great, doesn't it? Who wouldn't want to pay $460 less per month in payments?

But they don't tell you that it will now take you six years to pay off the loan. This may not sound that bad to you at first unless you realize how much more you will actually pay in additional payments. You will now pay $46,080 to pay off the new loan vs. $40,392 for the original loans, even with the lower interest rate of 9%. This means you paid $5,688 more for the "lower payment." Not such a good deal after all. This example shows you why they are in the business – because they make money off of you.

The Real Way to Get Out of Debt
The answer is not the interest rate; the answer is a Total Money Makeover. The way you get out of debt is by changing your habits. You need to commit to getting on a written game plan and sticking to it. Get an extra job and start paying off the debt. Live on less than you make. It is not rocket science, but it is emotional, which is why most people need help getting through it from someone like Dave Ramsey. Don't try debt consolidation!

 

[ProfMoneyWise]

Step 1 Retrieve last years tax return;

Step 2 Add up your income this year to date;

Step 3 Estimate your income between now and December 31, 2010;

Step 4 Result more or less than last year?

If more make sure you are having more withheld from your pay so that you do not owe come tax time next year. If less, are you having to much withheld? This is not HR or Payroll's job folks. You control you not HR. You care about your money not payroll. Do not have to much, or to little held out of your pay for State and Federal Taxes.

And if you settled a debt for less than you owed this year be prepared to recieve a 1099 that will show the amount you did not have to pay as income. What does that mean? That means the State and Federal will charge you tax on that money as if it were income. Don't believe me? Check it yourself.

So what you do now is start saving up to pay those extra taxes. That would be demoralizing if you settled a debt, got some breathing room only to find you now owed the IRS or State would it not? Answer is a resounding YES it would because the State and Federal tax folks have zero sense of humor . . . and a heck of a lot of power to ruin your financial day. Besides, you owe it, so pay up.

 

[ProfMoneyWise]

PMW Says: Not Senator Fred Thompson! I used to like him. Darn it . . .

PMW Says: A reverse mortgage is a loan with high fee's. There are other ways to get money out of your house if absolutely necessary in your later years.

PMS Says: Tap your equity the old fashioned way . . . sell the home.

Reverse Mortgages Make You Go Backward
Taking you away from prosperity and peace

AUG 17, 2010 | WRITTEN BY CHRIS RUSSELL

Anyone who has ever paid off a house knows the work that goes into it, which makes the thought of a reverse mortgage all the more puzzling.

A reverse mortgage is when you take the equity out of your home so you have money. It's exactly what the name implies. With a traditional mortgage, you pay on the house once a month until you own it. In reverse, you take money out either all at once, as a credit line or by installments.

It's typically marketed to older people who have paid-for houses so they can "utilize their equity" and have money. In that case, when the older person dies, sells the home or moves out, the bank takes the house or gets the money from the sale (since the person no longer has equity).

People who are tempted by the idea of tapping into their home equity typically have no money. They may have done well to pay off their house, but they haven't invested during their lives and thus have no savings. They do the reverse mortgage so they have money to eat and get by. But the fees, high interest rates and charges that go into it will take a lot of your cash. The only thing worse than taking money out of your home is paying a bank to do it.

When you do a reverse mortgage, you are destroying what you have built up over your lifetime. You worked hard to get out of debt, and now you're putting yourself back in. If you are older and don't have a lot of cash, you need to look at your budget and cut some things out, or even get some work.

Don't go back into debt because you lie awake most nights–that's not something you want to think about as an older person. Keep your financial peace in place by staying away from debt.

 

[ProfMoneyWise]

PMW Says: If you cannot fathom paying off your house you are living in to big of a house.

PMW Says: Your house payment is usually your largest monthly expense. This expense must be out of the picture before you consider retirement.

PMW Says: There is no shame in renting but there is shame in foreclosure.

PMW Says: 100% of the foreclosures happen on homes that have mortgages.

The Biweekly Mortgage Program
Not paying for something you can do for yourself
SEP 29, 2010 | WRITTEN BY CHRIS RUSSELL

Matt on Twitter wonders what Dave (Ramsey) thinks about a biweekly mortgage program from his mortgage company. Dave says as long as there isn't a fee associated with it, he thinks it's just fine.

(Dave's answer below)

If they don't charge you for it—if there's no fee associated with doing it—I'm fine with it, because you're paying extra on your principal.

Now, let's explain what it is and why I wouldn't pay for it. Most of the time, your mortgage company or someone else will send you a thingy in the mail that says for $495 or $395, we will sign you up for a biweekly mortgage plan, and we'll charge you $10 a month as a service fee, too. A biweekly mortgage will pay off a 30-year mortgage in about 22 years, give or take. Why wouldn't I pay to get rid of my mortgage eight years early?

Let's understand what a biweekly mortgage is, and then you figure out why you don't need to pay for it. If you want to set it up and they do it for free, I would say yes. You pay half of a mortgage payment biweekly—every two weeks. There are 52 weeks in a year, 26 two-week periods in a year. Twenty six half mortgage payments equals 13 whole mortgage payments. Why does your mortgage pay off early? Because you're paying an extra payment a year. There's no magic to the fact that it's every two weeks.

You don't have to pay a $300 service fee to make an extra payment a year. Just write the bank an extra check once a year. That will pay your house off in about 22 years instead of 30.

 

[ProfMoneyWise]

PMW Says: It does not have to be complicated. In fact the simpler the better. Those that seem bent on complicating it I suspect their motives at times. I mean I'm glad you are smart and I hired you to be smart. The more you try to prove it the more I think I made a mistake.

PMW Says: I'm all for "having a guy." But having a person who guides your investments does not mean you are supposed to be clueless about where he is sending them. At least read the prospectus (yes the one you throw away) and find out what the top ten stocks are in your funds so you can patronize those companies when possible.

PMW Says: If you are invested in a single stock . . . and it loses 15% . . . you lose 15%. If you are invested in mutual fund and a single stock in the fund loses 15% the other stocks in the fund may absorb that loss or at least mitigate it. See why I like mutual funds?

PMW Says: If I don't want to wash my car I pay a fee to have it washed. If I don't want to research marketplace trends I pay a fee to have them researched. I don't want to overpay to have my car washed nor do I want to overpay on my investments. But paying for a service is fine by me so I don't get all wrapped around the axle on fee's charged by an Investment Service.

PMW Says: An investment can do one of three things. Go up. Go down. Hold steady. Don't be surprised when it does one of the three.

PMW Says: Any money you need to be there in 5 years or less is called savings. Any money you don't need for 5 years or more can be invested. Savings are not to be kept in the stock market.

PMW Says: Vegas without the lights is what I term single stocks.

 

[ProfMoneyWise]

PMW Says: Sure I'm all for sharing my time but I'm not for "Timeshares."

PMW Says: If you want to go somewhere then go, have fun, then leave. Why on earth do you feel you need to pay to cut the grass for the next guy?

PMW Says: There is a long line of people trying to get out of their timeshares. There is a long line of people who will give theirs away if you just take over the maintenance fee's. There is a long line of people who will gladly take a loss just to get out of the deal they are in. Why again are you considering signing up for one?


Why Dave Says a Timeshare Sucks
There are better ways to go on vacation
JUN 16, 2010 | WRITTEN BY CHRIS RUSSELL

Listen to your average timeshare salesperson make their pitch, and you'll walk away thinking that this vacation plan is the best thing since sliced bread.

But when you get down to it, moldy bread is better than one of these deals. At least it's easy to get rid of moldy bread.

Here's how they work. A timeshare is a condominium project on the beach or in the mountains or something like that. Instead of buying a condo for yourself, you share time in the condo with 52 other people, and it's sold off in blocks of one or two weeks. Since you don't own the condo, you can only stay there during your designated time.
Doesn't seem so bad, you say? Well, we aren't done yet.

People who buy them and actually use them are rare. And even if you do use the time, it will cost you between $15,000 and $20,000 a year. That's for a getaway that lasts one week! For that much money, you could take two or three luxury vacations and come home free and clear, not tied to some piece of property that no one wants anyway.

Plus, when you add in maintenance costs and other fees (which you have to pay even after you've paid off the property), it's even more money down the drain.

On top of that, the consumer dissatisfaction rates on your average timeshare are about 97%. That means if 100 people buy, only three end up liking it! Since they are so hard to sell, you are basically stuck with them.

If you are stuck in one, a good way to get rid of it (and help someone at the same time) is to get it paid off and give it away at donateforacause.org.

 

[ProfMoneyWise]

PMW Says: Misbehavior, incompetence or even fraud by a lender does not negate the fact a person borrowed money and quit paying it back.

PMW Says: Let's say any of the lenders actions of late really enabled a magical erasure of the debt. The person that borrowed it wipes their brow, says "whew" and gets what a free ride? What about the majority of us who pay our debts? Are we now happy this happened? What will the former debtor do now, go buy something else they cannot ultimately pay for and hope for another free ride? What is getting lost in all this is the root of the problem I'm afraid.

PMW Says: This foreclosure debacle will pass and the paperwork will get sorted out and the process will begin again. Instead of waiting for a miracle to occur those caught up in this should be working extra jobs, overtime, selling stuff and doing everything they can to pile up cash so that when the foreclosure folks come calling again they can be handed the money to bring things current instead of the keys.

PMW Says: Never buy a house until you are debt-free, have a fully funded emergency fund, can afford the amount down to avoid PMI, have a 15 year fixed mortgage where the total PITI+HOA does not exceed 25% of your take home pay.

 

[ProfMoneyWise]

PMW Says: Learning from mistakes does not mean you have to make them.

PMW Says: If we are so quick to believe a good fortune story why are we so quick to dismiss a bad decision story? And more bad decision stories are valid than the good luck ones you hear about.

A real life current situation is this weeks entry. Can you see this happening to you? Does not take much to make the domino's start tumbling does it?

I am a 42 year old, single mom, registered nurse. 5 years ago my mother wanted to open a child care center. She didn't have enough money to get a small business loan (needed to have 20% of the loan in the bank), so I took out a home equity line of credit for $40,000. The money went to her, and the payment for the loan was to come from the center. I also ended up racking up about $40,000 in credit card debt, which was also to be paid by the center. Fast forward 2 1/2 years to a nasty economy, where no one could afford to pay for premium child care, and the center ended up sold at a loss. My parents had to file bankruptcy, which left me with all of my debt. I (stupidly) turned to a debt consolidation company, who told me to stop making all payments and they would settle my debt. Well, it got settled alright- in court, in judgments against me! So, now I have 3 judgments, one for 12,000, one for 3,000 and one for 6,000. The rest of the credit card debts were turned over to collections, but so far no one else has sued. The three judgments are from June of 2009. All of the other collections are about 3 years old. My home equity line of credit now says "charged off as bad debt" on my credit report. I'm not sure why there isn't a lien against my house. It was a loan that charged only interest, so even when the center was making the payment, the balance never went down.

Now, my house.....In summer 2008, I moved to Florida, because my parents had moved here and my father developed health issues. I knew a family whose kids were in my kid's classes, and the mom was a room mother with me for 5 years, who were looking for a place to rent. I offered up my house, thrilled that someone I knew would be renting it. They paid the rent for 8 months, and then just stopped. I could not afford to pay the rent/living expenses for where I am living in Florida and pay the mortgage/taxes on my house, so I had to stop paying on the mortgage. It has been a year since they have paid any rent. I applied with the NJ courts to have them evicted for non-payment of rent and after months of waiting for a date, I finally went up last month to have my day in court. They didn't show so I thought I would win by default, but the judge announced they had filed for bankruptcy the day before and so they are protected, and I cannot throw them out. The house is now in the early stages of foreclosure. According to the bankruptcy court they will eventually have to get out, but I don't know how long "eventually" is. Even though I have had the house on the market for over a year, the renters won't let my realtor in to show it, so I don't have any idea how long it will be before I can hope to sell. If I do finally sell, I should be able to get about $140,000 for it. I owe $102,000 on my mortgage, but I don't know how much in late fines/interest I will need to make up. My current payment due is $12,000. I also don't know how much time I have before the whole foreclosure process is complete.

I have no current credit cards. The only active debt I have right now (besides the house) is my car payment, and only 5 payments remain. Everything else is all of the collection and judgment stuff.

What do I do? I don't want anything from the house. I just want to be rid of it. Should I file bankruptcy and include the house? Should I not file, try to sell and hope to get enough to take care of the collections and judgments? I'm so tired of the constant worry about this and don't know what the first step is in trying to move forward with my life. After I pay all of my basic bills, I have very little left over each month. Help!

 

[ProfMoneyWise]

Debt-Free U

How I paid for an outstanding college education without loans, scholarships, or mooching off my parents.

By Zac Bissonnette

If college is in your future or present please avail yourself of Zac's book. Excellent information for those who have this on their RADAR or find themselves already immersed in this expense.

 

[ProfMoneyWise]

PMW Says: Personal finance is a game played on a field called reality and the only equipment needed is between our ears.

PMW Says: The only one that cares more about your money than you do is the one trying to get it.

PMS Says: Black Friday, Cyber Monday, Christmas Season in general. All can be enjoyed if you let your cash be your guide and don't spend what you do not have . . . or have not earned yet.

(Reprinted from a Yahoofinance.com article)

Get to know these seven hidden triggers, and next time you go shopping you can look at retailers' pitches with a more critical eye -- and maybe avoid blowing your budget:

"Shop Today and Save 50% Next Week."
Aimed at: Your best intentions.

Why you fall for it: The promise of bigger savings in the future appeals to people who think they can game the system, says Lars Perner, an assistant professor of clinical marketing at the University of Southern California's Marshall School of Business. You figure on buying just one or two things now, then returning to pick up a few more. But volume-driven retailers are using the now-and-later tactic this year to steer consumers back to stores when they know they'll have new stock or other promotions that help you buy more than you planned.

It's similar to the "buy a little bit more and get a free gift" promotion, Perner says. Borders (NYSE: BGP - News), for example, offers a $20 bonus to anyone who buys $100 in gift cards -- with the caveat that it can be used only during its post-holiday clearance Dec. 26-31. Similarly, through Nov. 15, Kohl's (NYSE: KSS - News) is offering customers $10 in store credit for every $50 spent, to be redeemed Nov. 16-24, just before Black Friday. "They're good at doing these combo deals," says Paul Swinand, an equity analyst covering department stores for Morningstar. Such promotions are effective at driving traffic and store loyalty, he says.

"Limit Five Per Person."
Aimed at: Your competitive spirit.

Why you fall for it: Limits trigger a feeling that the deal is so great that, if not for that limit-four-per-customer rule, shoppers would be filling their carts to the brim, leaving none for you, says L.J. Shrum, the president of the Society for Consumer Psychology and the marketing department chair at the University of Texas at San Antonio. Setting a limit increases the likelihood you'll buy at least one, and it's even more effective if you were already planning to buy one of the item.

Higher numbers in promotions have the same effect, according to a 2007 study in the Journal of Retailing. Changing the structure of a sale from "Buy two" to "Buy eight" resulted in a 55% increase in sales -- regardless of the price of each option, says study co-author Kenneth C. Manning, chair of the marketing department Colorado State University. This year, limits are showing up on anything a store wants to get rid of. You'll even see limits on items that might seem absurd to purchase in multiples, Shrum says. In its early Black Friday sale, Best Buy (NYSE: BBY - News) limited sale items -- including $120 Blu-ray players and $280 laptops -- to one per person. The two-day sale was too short to have a big impact on quarterly sales, but likely piqued shoppers' interest, says Michael Pachter, an analyst for equity research firm Wedbush.

"Our Big Sale Ends Tomorrow/Today/in a Few Hours."
Aimed at: Your survival instincts.

Why you fall for it: Fear, pure and simple. This tactic appeals to a basic instinct to grab what's available or be left without, says Noah Goldstein, an assistant professor of human resources and organizational behavior at the Anderson School of Management at the University of California, Los Angeles. Think of the crowds stocking up on bottled water and canned goods before a major storm comes through. In those frenzied hours, it's a matter of survival.

Retailer e-newsletters have made it easy to extend that tactic online, and many retailers send multiple emails to shoppers as the end of a sale nears. And they often respond. On the last day of Old Navy's 25% off sale, the company sent consumers an email saying, "Last chance; Hurry before the discounts drop!" That day, the number of people visiting OldNavy.com increased 8.32%, and those visitors spent 6.42% more time there, according to Compete.com. It's hard to know how much one impacted the other, says Aaron Smolick, the senior director of marketing for Compete.com, "but something happened."

(More next week)

 

[ProfMoneyWise]

PMW Says: You have money. They want money. You control the situation not them. Stay in control.

PMW Says: You work to make money to pay for things. To buy things before you have the money is to promise to work to make the money. Whomever you owe money to you owe work to. Thought having one boss was bad, now you work for Best Buy, Target, Game Stop, 5-Guys, WaWa and anywhere else you happened to pull out the plastic.


"Get 23% Off."
Aimed at: Your love of a bargain.

Why you fall for it: Real estate brokers have long known that uneven pricing (say, $524,755 versus $525,000) catches buyers' attention, because those odd numbers suggest a bargain that has already been marked down -- whether that's actually the case or not. This year, retailers have picked up on that tactic this year as a way to separate their sales from the sea of 20% off offers, Yarrow says. Amazon.com (Nasdaq: AMZN - News) recently advertised discounts of "up to 61%" on its bulk groceries, for example, while Designer Living and Art.com hosted 21% and 22% off sales. Although price-comparing consumers are unlikely to buy if the deal isn't the best out there, just looking opens up the door to impulse buys on other sale items.

"We Have a Great Deal on the Accessories For That, Too."
Aimed at: Your long-term investor.

Why you fall for it: Once the consumer has already made a decision to buy and to pay, it's easier to convince them to add related -- but maybe unnecessary -- items to their purchase, Shrum says. That's because in your mind, you already own the product, making you more vulnerable to pitches for things that promise to make the purchase more useful or less vulnerable. A 2009 Carnegie Mellon study found that consumers were more likely to buy warranties on purchases if they thought doing so would extend the life of their gadget or preserve its value. And shoppers who felt they were being offered an un-advertised deal were 42% more likely to buy. This is particularly common with products that would be expensive to replace, like smartphones or tablet computers. Compared to the $599 price of a replacement iPhone, the $99, two-year protection plan from SquareTrade looks downright cheap. And in fact from 2008 to 2009, 5% more consumers purchased a warranty for their computer, according to the Service Contract Industry Council, a trade group.

"Save $250! (New Price: $500.)"
Aimed at: Your price-sensitive side.

Why you fall for it: Touting big savings or using a gigantic font in an ad puts the deal at the center and makes the actual price an afterthought. What's more, your brain often perceives the actual price as more reasonable because of that big price drop, says Perner.
Stores have used this tactic more during the recession to sell higher-priced items, hoping that you'll take a closer look at the washer that has the splashy discount, even if it is more expensive than other models, he says. This trick works, experts say. As one small bit of evidence, they point to the rise in retail sales of electronics and appliances -- up 5.7% in September compared with last year, according to the National Retail Federation.

"Get a Free Gift With Your $50 Purchase."
Aimed at: Your inner child (who wants a present, too).

Why you fall for it: You were already planning to buy one sweater, but you're one additional belt purchase away from getting to get a free scarf. At the store, you don't think about the $20 price tag or about how rarely you actually wear a scarf. Instead, your mind sees the free gift as an additional reason to buy the primary product in the first place. (A 2009 study from researchers at New York University and California State University found that promotions were more effective if they highlighted the product to be purchased, rather than the gift.)
It's the retail equivalent of finding money on the ground. And shoppers equate added value with a discount -- even if they're spending extra money to get a freebie they wouldn't have otherwise purchased and might not even use, says Yarrow. That mindset is why stores have brought back the gift-with-purchase this year, as an alternative to big discounts. What's more, this sort of psychological trick makes you feel less guilty about buying -- or getting for free -- a little something for yourself. "It helps you justify the purchase," she says.

 

[ProfMoneyWise]

PMW Says:

Flexible Spending Account (FSA) funds left on the table – If you over estimated how much you would use this year be sure and adjust for next year. Always aim low when estimating.

Run your numbers. At this point your income for the current year is pretty well known. You should have been running a numbers check as the year went by to make sure you were having enough tax withheld. If you are getting a large refund adjust that number to reduce the amount of your refund. See it in your checks throughout the year instead of in one lump sum. It’s your money, why let the State or Federal Governments hold onto it for you?

Retailers are out to make their income for the year. Deals are abound. Know the game if you are going to play it. Come out the other end with things you really want and let your cash be your guide. If you can’t pay for it in full, don’t buy it.

Tax Return Loans –Tax Service providers are offering an advance on your tax refund amount earlier and earlier. You apply for one of these and you get an advance on your return . . . for a fee. So follow me here. You have more than needed withheld from your pay and basically provide an interest/fee free loan to the State and/or Federal Government. But then you apply for an advance on money that you should already have in your pocket and you pay a fee to do it?

Do you really want to get all caught up in buying gifts with money you do not have for people you sorta/kinda know who will forget all about what you bought them in a few weeks?

The stores are not offering you a discount if you sign up for their credit cards to provide you with a financial gain. Think about it.

Studies show 80% plus of those who sign up for the “same as cash” deal don’t follow through on their end of the deal.

The reaction you get on Christmas morning is not worth what you pay for it on December 26. Don't give debt for Christmas.

Buying on credit is agreeing to pay more than is being asked. On what level does this make sense?

I have never met a millionaire yet who raved about their cash back rewards, points or airline miles they get by using credit.

 

[ProfMoneyWise]

Christmas puts pressure on the budget. It is the one day we all have in common when it comes to spending pressures.

What do I mean? We all a have a day for our birthday but not the same day. Christmas is that one day that is the same for all of us.

Don't let spending pressure make you ignore "needs." If you need new tires that is a priority over buying Aunt Bertha a gift. If your roof is leaking that is a priority over Uncle Bill's thing that he will forget.

Just because an item is inconvenient does not mean it is not a priority. To "worry about it after Christmas" is not a plan that an adult puts in place.

Remember . . . it is a long lonely walk to the mailbox on December 26th when those bills start showing up.

 

[ProfMoneyWise]

Top four reasons for divorce are shown to be Money, Religion, In-Laws and Kids.

Money is pointed at by many studies to be the number one cause of the four with the remaining three falling in line after. Christmas involves all of these.

Get number one under control at least.

 

[ProfMoneyWise]

2% less will be held out of most payroll checks in 2011 in hopes you will spend this money and stimulate the economy.

Some say to invest this 2%.

I agree. If you are in debt use this 2% to pay down your debt. Whatever the interest rate is on the debt you apply this money to is the rate of return you receive on this investment.

If you are out of debt you already know what to do with this money so I won't bore you with advice here.

Be smart about this and maximize getting to keep some of what is your money anyway.

 

[ProfMoneyWise]

PMW Says: https://www.annualcreditreport.com/cra/index.jsp

This central site allows you to request a free credit file disclosure, commonly called a credit report, once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion.

Pull Equifax today, Experian in April, TransUnion in August. Next December start it all over again.

A Summary of Your Rights under the Fair Credit Reporting Act

The federal Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies. There are many types of consumer reporting agencies, including credit bureaus and specialty agencies (such as agencies that sell information about check writing histories, medical records, and rental history records). Here is a summary of your major rights under the FCRA. For more information, including information about additional rights, go to FTC Bureau of Consumer Protection - Consumer Information: Computers & the Internet or write to: Consumer Response Center, Room 130-A, Federal Trade Commission, 600 Pennsylvania Ave. N.W., Washington, D.C. 20580.

• You must be told if information in your file has been used against you. Anyone who uses a credit report or another type of consumer report to deny your application for credit, insurance, or employment – or to take another adverse action against you – must tell you, and must give you the name, address, and phone number of the agency that provided the information.

• You have the right to know what is in your file. You may request and obtain all the information about you in the files of a consumer reporting agency (your "file disclosure"). You will be required to provide proper identification, which may include your Social Security number. In many cases, the disclosure will be free. You are entitled to a free file disclosure if:
o a person has taken adverse action against you because of information in your credit report;
o you are the victim of identify theft and place a fraud alert in your file;
o your file contains inaccurate information as a result of fraud;
o you are on public assistance;
o you are unemployed but expect to apply for employment within 60 days.
All consumers are entitled to one free disclosure every 12 months upon request from each nationwide credit bureau and from nationwide specialty consumer reporting agencies. See FTC Bureau of Consumer Protection - Consumer Information: Computers & the Internet for additional information.

• You have the right to ask for a credit score. Credit scores are numerical summaries of your credit-worthiness based on information from credit bureaus. You may request a credit score from consumer reporting agencies that create scores or distribute scores used in residential real property loans, but you will have to pay for it. In some mortgage transactions, you will receive credit score information for free from the mortgage lender.

• You have the right to dispute incomplete or inaccurate information. If you identify information in your file that is incomplete or inaccurate, and report it to the consumer reporting agency, the agency must investigate unless your dispute is frivolous. See FTC Bureau of Consumer Protection - Consumer Information: Computers & the Internet for an explanation of dispute procedures.

• Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information. Inaccurate, incomplete or unverifiable information must be removed or corrected, usually within 30 days. However, a consumer reporting agency may continue to report information it has verified as accurate.

• Consumer reporting agencies may not report outdated negative information. In most cases, a consumer reporting agency may not report negative information that is more than seven years old, or bankruptcies that are more than 10 years old.

• Access to your file is limited. A consumer reporting agency may provide information about you only to people with a valid need -- usually to consider an application with a creditor, insurer, employer, landlord, or other business. The FCRA specifies those with a valid need for access.

• You must give your consent for reports to be provided to employers. A consumer reporting agency may not give out information about you to your employer, or a potential employer, without your written consent given to the employer. Written consent generally is not required in the trucking industry. For more information, go to FTC Bureau of Consumer Protection - Consumer Information: Computers & the Internet .

• You may limit "prescreened" offers of credit and insurance you get based on information in your credit report. Unsolicited "prescreened" offers for credit and insurance must include a toll-free phone number you can call if you choose to remove your name and address from the lists these offers are based on. You may opt-out with the nationwide credit bureaus at 1 888 5OPTOUT (1 888 567 8688).

• You may seek damages from violators. If a consumer reporting agency, or, in some cases, a user of consumer reports or a furnisher of information to a consumer reporting agency violates the FCRA, you may be able to sue in state or federal court.

• Identity theft victims and active duty military personnel have additional rights. For more information, visit FTC Bureau of Consumer Protection - Consumer Information: Computers & the Internet .

 

[ProfMoneyWise]

PMW Says: Tax time is coming. If you are getting a large refund you need to ask if you really need the IRS to save for you or can you finally buck it up and be in charge of you? If you owe a bunch and are surprised do you rant and rave about it or sheepishly admit you either did not pay attention to your business or you knew better and just ignored it?

W-4 Adjustment time either way. We are not nearly as mysterious as we think we are. We make money and the IRS and State take some based upon published formulas and rates. Time to know what they are, run your numbers, and move along.

Don't be intimidated by the W-4 either. Here are some common myth's:

MYTHS ABOUT W-4 AND ALLOWANCES:

1. You can't claim more than 10 allowances.
FALSE: Some people have even been told this by their HR department, but it's patently false. How did this get started? Years ago the IRS required employers to file a form when an employee claimed more than 10. The IRS dropped that requirement at least 20 years ago, yet the legend still continues.

2. The IRS reviews your W-4.
FALSE: The W-4 is between you and your employer. It allows the employer to correctly calculate withholding. After that it goes into your employer's files. The IRS does not receive it, does not review it and does not care about it.

3. There is a limit to the number of allowances I can claim?
FALSE: If you're still having too much state and federal tax withheld, you can always claim more. There is no limit. You can even write EXEMPT on your W-4 and have no taxes withheld (however, you are always responsible to pay the taxes owed on April 15th, including a small penalty if you've under-withheld by a large amount.)

4. My HR department says I can only change my W-4 once per year.
FALSE: That may be your HR department's preference to reduce paperwork, but the IRS requires your employer to accept an updated W-4 at any time.

I am not a tax professional, but I do know what I know.

 

[ProfMoneyWise]

PMW Says: Is the re-fi worth it . . . keeping it simple:

Current loan balance * current interest rate = how much interest you pay in a year.

New loan balance * new interest rate = new amount of interest paid in a year.

Old annual interest - new annual interest = interest saved in a year.

Closing costs / interest saved in a year = how long it will take you to recoup your closing costs.

For the sake of example, a $100,000 loan at 7% costs $7000 interest in a year.
If you refi $100,000 and roll in $2000 closing costs at 5%, you'd pay $5100 in interest in a year.

That's a savings of $1900. Which means it'd take you roughly one year to recoup your closing costs. That would be worth it.

Generally if it takes you more than 2-3 years to recoup your closing costs, or you don't plan to be in the house long enough to do it, it's not worth doing.