Dr. Laura, America's #1 Relationship Talk Radio Host
On: SiriusXM Stars Channel 106
Call 1-800-DR LAURA (1-800-375-2872) 11am - 2pm PT
Image 01 Image 02
Simple Savings
05/07/2010
IconControlling Bank Fees The Dollar Stretcher by Gary Foreman www.stretcher.com gary@stretcher.com My bank has charged me almost $150 in fees and over $100 of that is in fees from a negative balance (4 times!!) They can't charge me like that...can they? Matt The simple answer to Matt's question is, yes, they can charge him that much. And he's not the only one complaining about increased bank fees. Many consumers have noticed the hit to their wallets. Competition for loans has forced bankers to offer lower interest rates to borrowers. That's great for homebuyers. But it also means that banks aren't making as much on those loans. So they're using fees to boost their bottom line. For instance, ATM fees raise over $2 billion a year. Public interest groups claim that because of the fees that banks impose there are over 10 million families that can't afford bank accounts. So what can Matt do? Basically he has two options. He can avoid negative balances or find an account that's more lenient when he does have a negative balance. According to Bankrate.com the average service fee for interest accounts that fall below the minimum balance is $10.85 per month. Bounced check fees generally run about $25. Frustrating as the fees are, Matt can control the situation by not writing checks for money that's not in the account. Many bounced checks can be avoided simply by entering each check in the check register, subtracting it from the previous balance and balancing the checkbook each month. Overdraft protection might be appropriate for Matt. He'll pay for the service. But probably less than what the bounced checks are costing. The problem could also be with Matt's paycheck not being available quickly enough. His bank is required to tell him how long they 'hold' incoming funds before they're available for payment. The length of holds is regulated by law. If Matt needs to have the money available sooner, direct deposit might solve the problem for him. Matt has already recognized that bank fees can eat up his savings. So if he's going to continue to flirt with a negative balance, he'll need to find an account that's more forgiving. The American Bankers Association commissioned a survey on bank fees. They found that 58% of the consumers surveyed said that they paid $3 or less per month in fees. However, 64% also said that they avoid fees by maintaining the minimum balance required by their account. In effect, they've found an account that matches their needs. Recently more banks have been offering free checking. "Free" sounds good, but most have hefty fees for bounced checks, negative balances and ATM use. Matt might have one of those accounts. He might be better off with a 'no frills' account. Or even an account that costs him a few dollars each month if that account has a low negative balance fee. It's a matter of finding an account that works for him. Might be as simple as asking his current bank what they have available. Matt should also check out smaller local banks or credit unions. They won't have as many branches or ATMs. But they do generally have lower fees. Finally, it's possible that Matt could benefit from combining accounts. Many people have more than one account. If he's struggling to meet the minimums he'll earn more interest and/or pay lower fees by combining accounts. Matt has recognized a problem. I'm sure that he could have found a better use for the $150 that was consumed in fees. Hopefully he'll find an account that matches his banking habits better. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website and ezines . Permission granted for use on DrLaura.com More >>

PERMALINK | EMAIL | PRINT | RSS  Subscribe
05/07/2010
IconEnough Life Insurance The Dollar Stretcher by Gary Foreman gary@stretcher.com Hi Gary, How much life insurance should a couple with two small children have? Anita H. While none of us like to think about it, Anita is wise to be concerned with life insurance. Should either or both parents die insurance could be vital to her children's well-being. There are two basic methods Anita can use to decide how much insurance she needs. One way would be to replace the income of the deceased. A second method is to buy enough insurance to cover your expenses. Your choice will depend on your present financial situation. If you struggle to pay your bills look at the expense method. Otherwise replacing the lost income should be sufficient. There are calculators that will do the numbers crunching for you. But unless you understand the process, it's hard to know whether they're giving you a good answer. Anita doesn't need a perfect answer. To get that would require seeing into the future. She'd need to know her longevity, investment return and future inflation rates. She can only estimate those things. So just try to get reasonably close. First we'll look at using life insurance to replace income. We'll assume a family where only one parent works. That way we can do one illustration when you lose a spouse who draws a paycheck and another one for the person who works inside the home. In most cases you'll want to replace all of the income that's lost when an employed spouse dies. To be more precise you'll only want to include the after tax pay and make adjustments for expenses (like a second car) that are incurred earning that income. Don't forget to add the value of health insurance or other employee benefits to the income number. Now Anita has an amount of income that she needs to replace each year. But life insurance is often paid off in a lump sum. We're going to assume that she'd invest the life insurance proceeds and spend the income that it generates. How can Anita calculate how big a lump sum she'll need to create a specific annual income? The calculation is simple division. Take the amount of annual income you want and divide it by the investment return you'd expect to earn on the lump sum (i.e. life insurance proceeds). For instance, if Anita needed $50,000 a year and thought that she could earn 5% on the money, she'd need a lump sum of $1,000,000 ($50,000 divided by .05 = $1,000,000). That $1,000,000 would provide $50,000 to spend each year without touching her principle. The investment return that you use will make a big difference in the calculation. For instance, if she assumed a 7% return she'd only need $714,000. What rate should Anita pick? Probably something between CD's on the low end and the long-term stock returns (8 to 10%) on the high end. It is best to overestimate your needs a little. Yes, you'll be buying and paying for a little more insurance than you need. But, if you underestimate you won't realize your mistake until too late. If a stay-at-home spouse dies the target is a little harder to figure. Unless there's someone like a grandparent who could move in and take over, the survivor will need to pay to have things done. And that can get expensive. Add up laundry, cleaning, cooking, day care and a hundred other chores and you have an idea of what the at-home spouse's "salary" is that needs to be replaced. Then calculate like you did for employed spouse. Another way to look at the problem is to have enough insurance to cover your expenses. The calculation is the same. Just use expenses instead of income in your calculation. Insurance companies will often encourage you to buy enough insurance to pay off your mortgage or other debts. That's nice, but it's not really necessary. When you consider how much money you'll need be sure to take inflation into account. Even a modest 3% inflation rate will cut the amount your income will buy in half every 24 years. So if you lose a spouse in your 30's your dollar will lose half it's value before you retire. Anita should also consider what would happen if both parents die while the children are small. Hopefully they have someone who's agreed to raise their children. If so, the question becomes how much is needed to allow the children's guardians to house the children (bedroom addition? a bigger home?) plus the extra expense of feeding, clothing and schooling the children. One final thought. Anita will also want to make sure that the insurance policy is set up properly. Choosing the correct owner and beneficiary can have important consequences. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website and free ezine . Permission granted for use on DrLaura.com. More >>

PERMALINK | EMAIL | PRINT | RSS  Subscribe
05/07/2010
IconProtecting Your Financial Privacy The Dollar Stretcher by Gary Foreman gary@stretcher.com I am considering going to a mostly cash basis with the passage of the Homeland Security bill. I have nothing to hide, but I just feel uncomfortable with the potential for abuse. Have you any thoughts about privacy? Anna Anna has lots of company. Many people are concerned with the amount of their personal information that's available. Computers can store and correlate an awful lot of stuff about us. Current federal government plans call for law enforcement to assemble databases of all credit card transactions and other personal data. Their goal is to look for patterns that could help them identify terrorists. Anna makes a valid point. Any time that you have that much information available there is a potential for abuse. Formal government misuse would cause a huge outcry and is probably unlikely. But that doesn't mean that a rogue bureaucrat couldn't make unauthorized used of the database. We're not going to get into whether it's a good idea to trade privacy for terrorism defense. That's a political discussion. But we will try to give Anna more information so that she can decide how to react with her personal data. Before Anna decides, it's important to note that government use of your personal records is only the tip of the iceberg. Direct mailers, credit card issuers and other corporations have been collecting the same type of data for years. So the government is only accumulating what already exits. A third group poses the biggest threat. Criminals have learned to take your personal information and use it to commit identity theft. In 1998 that was made a federal crime. Over 1 million people will be victimized this year. The Federal Trade Commission says that identity theft is the fastest growing crime today. Estimates say the costs are over $10 billion a year. The next thing is to consider what 'abuse' Anna is concerned about. Would the government use the information it collects about her? If not, is she harmed just because they have it? In some ways we're returning to a level of privacy that we had 50 or 75 years ago. At that time the local grocer knew what breakfast cereal you ate and how much you spent on groceries. Even in large cities you had neighbors who observed a lot of your habits. So what should Anna do? She may decide that she just doesn't want other people to know what she buys and does. The best way to limit the amount of info available on her is to avoid credit cards. That will be inconvenient. She'll probably need open a bank account to turn her paycheck into cash. The bank will require information to open the account. So she still will have some files outstanding. She'll also find that cash isn't accepted everywhere. It will be difficult to buy airline or other tickets. She'll need to pay utility bills in person or with a cashiers check. That takes time. There is a reason people use checks and credit cards. They're convenient. Anna will have to decide whether the additional privacy justifies the extra effort. She may choose to continue to use credit. If so, there are steps that she can take to keep privacy problems to a minimum. First, find out how information will be used before providing it. Do not give out personal information by phone, mail or in email unless you initiated contact with the organization. Be wary of anyone trying to get your Social Security number, bank account info or other personal information. Especially if they contacted you first. Many places will try to use your Social Security number as an identification. Even though that is a common practice today the law that started Social Security made it illegal. Your doctor's office won't be happy if you refuse to provide a Social Security number but you're not required to do so. Their record keeping software will work fine with a made-up number. Minimize the number of cards and IDs that you carry. Do not carry your Social Security card or number in your purse or wallet. Watch for your credit card bills. If they're more than a few days late contact the credit card company. Your trashcan can be a fertile ground for your personal info. Get a shredder and use it. Order a credit report from all three credit reporting agencies at least once a year. Make sure that you know about all the accounts listed in your name. You can order a report for a nominal fee at Equifax: 800-685-1111; Experian: 888-397-3742; and Trans Union: 800-916-8800. Only Anna can decide how much energy she wants to devote to protecting her privacy. There's no doubt that it gets harder every year. Hopefully Anna will find a balance that's acceptable to her. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website and ezines subscribe-dollar-stretcher@ds.xc.org . Permission granted for use on DrLaura.com More >>

PERMALINK | EMAIL | PRINT | RSS  Subscribe
05/07/2010
IconScrooge's Christmas List The Dollar Stretcher by Gary Foreman gary@stretcher.com "Cratchit, take your Christmas grab bag and be gone. Out, I tell you, or you'll be seeking new employment!" That scene wasn't included in Charles Dickens' "A Christmas Carol" but I can easily picture crotchety old Scrooge taking Bob Cratchit to task for attempting to include him in an office holiday gift exchange. Scrooge certainly is the symbol of someone who doesn't like Christmas. But, if you think about it, many of us harbor Scrooge-like feelings today. We really don't want to participate in yet one more gift exchange. We're out of both time and money. The sad fact is that for many of us, Christmas shopping has become largely an obligation. We buy presents because it's expected. Take a look at your list. How many gifts are you buying because you really want to bless the person receiving it? And how many fall into the "I gotta" category? Part of the problem for all of us is that most of the people that we buy for already enjoy material wealth. They truly "don't need anything". In fact, your present creates a problem for them. Yes, I know that some think only a real Scrooge would take people off of their gift list. But, I'd disagree. Many of the gifts that you will give this season will actually hurt the person you give them to. Here's how. They really don't need whatever you bought. It's just one more item to take up closet, cabinet or attic space. You've put them one step closer to needing a bigger house (with a bigger mortgage payment). You'll consume their time and money without adding any enjoyment to their lives. And, you'll diminish your own life, too. Whether you consider this time of year to be an important part of your faith or just a time of goodwill, rushing from store to store will take your mind from the real meaning of the season. You will be focused on things. Not on the relationships that are important to your life. So I'd argue that it's really in the spirit of the season to reduce the number of people on your gift list. In fact, you'd be doing friends a favor by not exchanging gifts. You'd both save the time spent buying and wrapping the gift. If you truly value that person, it's much better to get together for lunch or dinner and catch up on what's happening in your lives. OK, in some cases it's not practical to drop people from your list. So how can you make the best of gift shopping? Before you go shopping, consider why you're buying each present. Decide which people on your list are really important. You have a limited amount of time and money. Spend them on the people who are truly important in your life. Everyone else should be handled without a big fuss. It's not that we don't like the people in our office gift exchange. It's just that six months from now they won't remember what you bought them. An office party is a great place for a gag gift. Thrift stores can provide an assortment of items that can be used for funny gifts. Stuffed animals, clothing, coffee mugs and toys are fertile ground for the imagination. Is the recipient a stickler for time? An old alarm clock could be good. One where the hands have been removed is even better. Many of us have far away relatives and friends. Unless you're particularly close, you might as well admit that you really don't know what they already have or what they need. So no matter what you get there's a good chance that it will need to be returned. Rather than combing the malls hoping that the perfect item will jump into your arms, why not consider a gift certificate from a national chain of stores. Or, better still, agree to a dollar amount that you will each spend on your own family. Do your buying after Christmas and send the 'giver' a photo of the gift that 'they bought'. For local friends and relatives, think about where your lives intersect. That's the place to begin looking for a present. If you find that your lives have drifted apart, it's better to spend time catching up instead of shopping. Then there's those very special people on your list. Your spouse, children and others who you truly want to make happy with a gift. Remember that it's not how much you spend. While it's nice to find a thoughtful gift for that special someone, what they really want is you. The people that are most important in your life want your time and attention. They want your happiness. Don't disappoint them by picking something that's expensive but impersonal. Finally, please understand that this isn't meant to imply that you shouldn't give to those who need help. Not everyone in our world is blessed with the abundance that so many of us have. And the less fortunate can use your gift. If you can afford to, please participate in Angel Tree, the Salvation Army kettles or other programs to help those who struggle. If you're really in the holiday spirit you'll feel much better giving that new sweater to a poor child rather than your Aunt Edna. Nor is this meant to imply that you should ignore the holidays. This is a wonderful time of year. My hope is that you'd make the most of your resources and bring happiness to the people who matter in your life. Here's to a wonderful holiday for everyone. Hopefully your holiday will be filled with joy and wonder. Gary Foreman has worked as a Certified Financial Planner and currently edits The Dollar Stretcher website You'll find hundreds of free articles to help you save time and money. Visit Today! Permission granted for use on DrLaura.com More >>

PERMALINK | EMAIL | PRINT | RSS  Subscribe
05/07/2010
IconAn Allowance and Your Child's Growth The Dollar Stretcher by Gary Foreman gary@stretcher.com My sons are 4 and 7. I have not started an allowance yet since I have a problem enforcing chores. If you have any advice on how much to start them at and when I should start it would be greatly appreciated. My 7 year old asked me last month if I could pay him an allowance and I told him that he was not doing his non-paying chores now and could not get money until he does this and then some additional chores. How do I get him motivated? He is lazy and unfortunately we have spoiled them both by always buying them things. Thank you. Carolyn Carolyn will want to begin by understanding that an allowance can be a great tool for teaching your child about money and life. A properly used allowance can also help motivate a child and give them the opportunity to learn from small mistakes. You really can't successfully start an allowance until a child understands how to count. It's even better if they can do basic addition and subtraction. One of the first things they'll learn with an allowance is to recognize the different coins and how to make change. Usually your child will be ready in the 6 to 8-year old range. Many parents start when the children reach first grade. Our children received $1 for each grade level. So when they were in second grade they got $2 per week. It's impossible to say exactly how much allowance is enough. A lot depends not only on the child's age and the family's financial circumstances, but also the maturity of the child. In setting an allowance you're trying to get within a range. You don't want it to be too small. That won't motivate the child. The allowance needs to be large enough for them to make meaningful decisions. When a child realizes that he has it in his power to buy a desired toy, he'll begin to grasp the concept of money. Next they'll learn that something they want costs more than their weekly allowance. When they decide to save for a few weeks to make the purchase you've taught them a valuable lesson. On the other end of the range, an allowance can be too big. They should have enough money to make small but not large mistakes. And, the allowance shouldn't be a burden on the family budget or be beyond a child's maturity. Carolyn will actually want her kids to make some mistakes. Expect them to buy a poor quality toy. Talk to them about the choices they make. Those lessons today could keep them from making major mistakes years later. Parents tend to divide on whether an allowance should be tied to chores. There are good arguments on both sides. Those who favor linking them claim that it teaches the child that you need to work for money. And, generally that's true. It's a good lesson for them to learn, too. However, it also puts the child in a position to say they won't do household chores because they don't need the money. That's not something a parent wants to hear! Personally I favor keeping chores and allowances separate. Our family has work that needs to be done. And, in my view, everyone benefits from the work being completed. So everyone should help do it. Carolyn wants to get her kids motivated to do chores. In some ways children are just like adults. Everyone has a little greed and selfishness in them. Don't believe it? Then why is "mine" one of the first words that a baby learns? And teaching toddlers to share is one of the harder lessons? You can use their greed and selfishness to get them motivated. Even if the allowance and chores aren't directly linked, you can still withhold it if tasks or grades aren't kept at an acceptable level. Just make sure that the child knows in advance what is expected and the penalty for not meeting that standard. Most children will quickly grasp the connection between doing their work and getting the things that they want. Smart parents use an allowance to teach their children about money. Carolyn has already identified a motivation problem in her son. It will be much easier to correct it now than when he's nearing adulthood. In a world filled with checks, ATM's and credit cards children need to learn about money early. Parents can use an allowance to speed that education. Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website and ezine . Permission granted for use on DrLaura.com More >>

PERMALINK | EMAIL | PRINT | RSS  Subscribe
05/07/2010
IconWanting a Newer Car The Dollar Stretcher by Gary Foreman gary@stretcher.com Gary, My husband and I are in quite a bit of credit card debt and my husband wants a newer car. It is a 14-year old Acura Legend and has over 190,000 miles on it but we can't afford another bill until we get out of debt. If all goes as planned we should be out of debt within about two and half years. But that could be longer if something comes up. He says that his car won't last two more years. We are trying to save a little bit but we don't have any money to put down on a car. We have money to pay our bills which is not the problem. We just don't have a whole lot of money left over after paying our bills. What would you suggest we do about this situation? Thanks, Mary Hubby's desire for a newer car is understandable. He's right. His car is old. But a dependable car is only half of the question. The second half is what happens to their finances if they buy a newer car. Mary's husband probably won't like this. Buying a newer car could throw their family into serious financial troubles. But that doesn't mean that hubby needs to be stuck with an unreliable, unattractive car. Let's look for a solution to their problem. Mary admits that they're having trouble accumulating any savings after the bills are paid. Any used car is going to require a monthly payment. If they don't have money for savings, there won't be money for a payment. Even if they could squeeze a car payment into the monthly budget, that would leave them with nothing for unexpected expenses. And we all know that those 'unexpected' expenses will come up. In fact, since they're squeezing the car payment in, there will be even more pressure to use the credit cards for other relatively minor expenses. So they can expect their credit card balance to increase as long as they're making a car payment. And as their balance increases the credit card payment will gradually go up. Each month it will be a little tighter. OK, so buying a newer car isn't a good option. So what can they do that lowers the debt and keeps hubby in a reliable car?There's an important fact to remember about the credit card debt. Each month part of Mary's payment is going to cover the interest on the borrowed money. If she can lower the interest rate or the account balance the amount of interest due will decrease each month. Mary has two options for lowering the interest rate. She can call her credit card company and ask for a lower rate. Especially if she has a good payment history with them. She can also consider transferring her balance to a new card with a lower interest rate. She'll need to study the offers carefully to avoid surprises. Some charge one low rate for transfers, but a higher rate for new purchases. Each month will get easier as the balance goes down. And, if she keeps making the same size payment each month, the balance reduction will get larger and larger. That gives Mary and her husband a little bit more money to work with every month. They have two options for that money. One is to continue to make the same monthly payment to the credit cards and force their balance down. The second is to selectively use some of the extra money to maintain their current car. A good mechanic can often spot breakdowns before they happen. If they can avoid major engine or transmission failure, repairs will be cheaper than a newer car. Hubby might even want to spend a few dollars making the car look better. Seat covers or an inexpensive paint job might make him feel a lot better about the old car. If they can avoid a car payment for a couple of years they'll be in a position to buy a newer car and avoid running a credit card balance. The money that had been going to MasterCard can be earmarked for the car payment. Naturally Hubby doesn't want to put too much money into an old car. But he needs to remember that buying a newer car now means unaffordable car payments for a used car that still will need repairs. If he hangs on for a little while he'll end up in a much better position. Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website www.stretcher.com/save.htm and newsletters subscribe-dollar-stretcher@ds.xc.org More >>

PERMALINK | EMAIL | PRINT | RSS  Subscribe
05/07/2010
IconThe Check Out Check Up The Dollar Stretcher by Gary Foreman gary@stretcher.com Dear Dollar Stretcher, My family is really struggling with our budget. We are a family of five spending approximately $500 per month on groceries and household items. Do you think we could do better? I use coupons, buy only generic and sale items at the local grocery store. What else can I do?! Would I save more money or get more for my money if I shopped at the big warehouses like Priceclub? Pam According to the U.S. Statistical Abstract the average large family (five or more) spent $405 per month on food eaten at home. Pam and her family probably are a bit on the high side. So what can she do to reduce the amount she contributes to her local grocery store? The first thing to consider is the non-food items that end up our grocery carts. Most of us are in the habit of picking up cleaning supplies and paper products when we grocery shop. And that's a good way to boost your bill. At your grocer you'll find shelf after shelf of specialty cleaning products. Check the ingredients. They're all pretty similar. Most cleaners contain a combination of ammonia, vinegar, baking soda, bleach and a generous helping of good old-fashioned water. They also add a fragrance so that things smell clean after you've done your work. You can save some money by making your own cleaners. Recipes are available in books, magazines and on the web. Most are simple and just as effective as what you'd buy in the store. If you really don't want to mix your own, then at least locate a janitorial supply store. Most will sell to the public. They carry industrial strength and concentrated cleaners. You won't get pretty packaging, but you will get more cleaner per buck. Now on to the food in Pam's grocery cart. Next time you return from the grocery store take a look at what you bought. Pay specific attention to 'convenience' items. You won't find this definition in Webster's Dictionary, but it's the one that the food conglomerates use. When they call something a 'convenience' food, it means that they're going to charge big bucks and the consumer won't complain. In fact, we'll thank them for saving us some time! Examine your purchases. How much of your money is really buying something that you're going to put in your mouth and swallow? And how much is going to packaging, individual serving sizes and 'convenience'? I don't ever recall seeing convenience on a nutrition chart! If you want a shock compare the price per pound of a whole ham and the sliced ham at the deli counter. Sure, for some people being able to buy just a few slices justifies the higher price. But a little thought here could open up a whole new way to look at shopping. Pam mentions that she's using coupons. Depending on where you live coupons may be helpful. In some areas stores still double coupons or allow you to use both a manufacturer's and a store coupon on the same item. That can make a big difference and is well worth the time spent. But, even without doubled savings, coupons can help. Some families insist on nationally advertised brands. Coupons can reduce the name brand cost to the price of the generic equivalent. Warehouse clubs can be a help, too, but you need to be careful in how you use them. First, and this is obvious, don't buy food that you're not going to use. Buying more than your family needs is wasteful no matter how cheap the item is. We almost instinctively think that bigger is better. That's not always true. Secondly, do not assume that buying a large size will reduce your per unit cost. Sometimes it's true and sometimes it isn't. Manufacturers know that we assume that the 'large economy size' is the best value. And sometimes they take advantage of that. Always compare the per unit costs. Not only between the large and small package sizes, but between your local grocer and the big warehouse stores. Finally, Pam can take advantage of something that no professional buyer would be without. That's a price book. When a buyer gets ready to place an order they know when they've bought in the past, who they purchased from and how much they paid. That information is priceless. Pam doesn't need a fancy system to take advantage of the same information. A simple three-ring binder will do. Use one page for each item that you buy on a regular basis. As you shop compare the prices you see to the appropriate page in your price book. If the price you find is low, add a new line showing the date, store and unit price. And stock up on the item. You've found a bargain. But, often you'll find an item with a big 'sale' sign that's still more expensive than the low prices in your book. That's the time to buy only enough for current needs. It's not uncommon for people to save up to 20% on their grocery bills by using a price book. It sounds as if Pam is already starting to take control of her food spending. Here's to healthy diet and a healthy budget for her family. Gary Foreman is a former purchasing manager who currently edits The Dollar Stretcher website . You'll find hundreds of free articles to stretch your day and your budget. Permission granted for use on DrLaura.com. More >>

PERMALINK | EMAIL | PRINT | RSS  Subscribe
05/07/2010
IconBoomer Caused Market Collapse The Dollar Stretcher by Gary Foreman gary@stretcher.com Gary,I recently read a book called "What If Boomers Can't Retire". The main concept is that about half of all baby boomers have retirement investments in stocks - IRA's, 401k's, mutual funds, etc. When boomers start retiring, those stocks will all start selling. Thousands and thousands of people selling stocks. Who will buy them all? There will be less working wage earners per retiree each decade, so they won't be buying as many shares. I would be interested in your thoughts on this. Larry Larry's concern is based on a basic rule of economics. If there are more sellers than buyers, prices go down. And, it is a fact that baby boomers will begin to take cash out of their retirement plans. But does that doom the stock market? Let's begin with some numbers. There were 77 million baby boomers born between 1947 and 1964. Or an average of 4.3 million per year. From 1965 to 1999 there were 140 million babies born. An average of 4 million per year. Not that big a drop. Next, remember that everyone won't sell at once. There's an 18 year span between the first and last boomers. The first ones will be starting retirement while the last ones are still in their peak earning (and investing) years. Baby boomers will live longer than their parents. Many don't plan on retiring at 65 and playing golf for 20 years. Some recent studies show that over half of boomers expect to work some during retirement. So they won't rely entirely on selling stocks to pay the bills. The tax laws also discourage stock sales. Many retirement accounts trigger taxes only when money is withdrawn. So boomers will delay selling as long as possible. The bottom line is that boomers will reduce their retirement savings at a slower rate that past generations. So the effect that concerns Larry will be diluted and happen over a long time. In fact, some retirement accounts will go to the boomers' heirs without ever being sold. Next, let's look at boomers retirement savings. They haven't invested everything in stocks. They have a mix that includes stocks, bonds, CD's, annuities and even their homes. That balance will gradually shift as they get older. If they're like previous generations, they'll slowly begin to sell stocks and their family size homes and put more of their savings in bonds and CD's for the income and safety. The shift will begin gradually before the first boomers even get to retirement. Some of the older boomers have already begun the process. The same free market that is the cause of Larry's concern also provides a solution. If stock prices fall fewer companies will offer new stock. So the supply of stock will shrink relative to the number of people. In fact, if stock prices fall below a certain level companies will begin to buy back their own shares. That will cause share prices to rise. Remember, too, that the U.S. stock markets are actually worldwide markets. And boomers aren't the only ones that tend to move as a group. Foreign investors are often either big buyers or sellers for a year or two. So far they haven't caused a market collapse. The long term trend of the stock market is much more closely tied to the health and size of the entire economy. The U.S. Census Bureau expects the domestic population to grow from 275 to 400 million in the next 50 years. So it's not unreasonable to expect the economy to keep growing. What should Larry do if he's a boomer thinking of retirement? His best strategy is to own a variety of assets. No retirement plan should be limited to stocks or any single investment type. Larry will be much safer if he owns a mix of stocks, bonds, real estate and CD's. The unforeseen events that will cause one type to go down will at the same time cause another type to go up. I would caution Larry not to count on Social Security to cover all his monthly expenses. Today there are 3 workers for every retiree. That will drop to 2 to 1 during the boomer retirement years. Current benefits cannot be maintained unless changes are made. Those changes are limited to benefit reductions for boomers, major tax increases for younger workers or a partial privatization of the plan. This is a hot political issue, but boomers will need to supplement Social Security if they want a comfortable retirement. A much bigger question for boomers will be did they accumulate enough savings before retirement. Using almost any measure a large number of them aren't saving nearly enough to support their current lifestyles. Hopefully Larry won't be among them. Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website and ezine subscribe-dollar-stretcher@ds.xc.org . Permission granted for use on DrLaura.com. More >>

PERMALINK | EMAIL | PRINT | RSS  Subscribe
05/07/2010
IconBuying a Refrigerator The Dollar Stretcher by Gary Foreman gary@stretcher.com Hi, I am in the market to purchase a new 25 cu. ft. side-by-side refrig./freezer. Is one time of the year better for sales? Should I try Ebay? Or what is cheapest method? Connie Connie asks a very good question. A refrigerator is not only one of the most expensive appliances you'll buy for your home, but it also consumes 20% of electricity you use every month. So a good decision now could save a few dollars every month for years. The experts I found say that you'll do best buying a major appliance during the winter months. No reason was given, but it might be that people are too busy paying off holiday debt to buy major appliances unless they have to. Of course, with something like a refrigerator the best time to buy is when your old one is still working. That way you won't be facing the cost of spoiled food and you'll have time to price shop. Connie should consider a three step approach. First, visit some local stores to see what's available. Get a general idea of pricing and what models and options she'd like to consider. Second, do a little research to narrow the search and compare prices. Only then is she ready to actually go buy her refrigerator. During her research, Connie will want to check repair records. It's hard to beat the information that Consumer Reports puts out. And, you'll find it free at most public libraries. Connie is wise to think of using the web to help her find a bargain. But Ebay might not be the place to look. A quick search under refrigerator only showed small under counter units and one commercial model. Even if Connie did find one at a price she liked shipping could be a major expense. But she will want to check out the websites for major retailers. Although she probably won't buy it online, she can get a very good idea of pricing. For instance BestBuy.com lists all of its side-by-side refrigerators on one page with basic size and price info. This is also the time for Connie to compare slightly smaller or larger units and to decide what features she really wants. For instance, a new side-by-side model will cost more to operate than a top freezer. Ice makers and water/ice dispensers are convenient but cost more. Once she's done her homework it's time to go visit some retailers. Before visiting the major national retailers it's probably wise to check out some alternatives. For instance a scratch and dent outlet might turn up a good deal. Connie might also want to check with rental centers. Often they have slightly damaged units that they're willing to sell cheaply. Remember that these units are sold as is. So make sure that you know exactly what's wrong and aren't missing anything important or expensive. She should also check out smaller local outlets. Many will meet the big boy's prices and offer more personal service. Don't forget that the initial cost of the fridge is only part of what you'll spend. Consider the operating costs. The yellow EnergyGuide labels are a great tool. The sticker will estimate how much each refrigerator will add to your electric bill per year. Remember that you'll probably keep a refrigerator 10 years or more. So a $25 difference between models is worth $250 over the appliance's lifetime. Once Connie has decided on a model it's time to find the lowest price. Don't forget that home improvement centers like Lowe's also sell appliances. And Connie doesn't have to limit her price shopping to physical stores. She can also use a published online price. A printout of the web page can prove handy. Now to negotiate with her favorite retailer. Most stores will match lower prices, including those found on the web. Simply ask the salesperson if they do. Even if their price is the lowest it doesn't hurt to ask if the listed price is their best price. And after Connie has negotiated the price ask for free delivery. If you haven't hit their rock bottom price yet they'll probably throw it in to complete the deal. Especially if you show a willingness to delay on the purchase. Connie will also be asked to buy an extended warrantee. But unless she's managed to choose a lemon, she really doesn't need the extra coverage. According to RepairClinic.com the average cost of an appliance service call is $120. Most extended warrantees cost quite a bit more. Gary Foreman is a former purchasing manager who currently edits The Dollar Stretcher website www.stretcher.com/save.htm and ezine subscribe@stretcher.com . Permission granted for use on DrLaura.com More >>

PERMALINK | EMAIL | PRINT | RSS  Subscribe
05/07/2010
IconManaging Your Mortgage The Dollar Stretcher by Gary Foreman When I send in my mortgage payment and I send in more than the minimum amount, the return payment stub asks whether I would like the additional payment to go towards escrow or principal. Which direction would be the best? Jim Jim asks a very good question. How you manage your mortgage payments can make a big difference in your financial well-being. Let's begin with a little background about mortgages. Many of you will already be familiar with this, so just consider it a review. When you take out a mortgage you've borrowed money. And, you've agreed to pay interest to the mortgage company for the amount of money that you owe. On all but a few mortgages, you'll make monthly payments. Part of that monthly payment will go towards the interest that's owed for that month. Another part of the payment goes to repay the amount borrowed (called "principal"). Your mortgage payment may also include an "escrow" account. That's where the mortgage company collects an extra amount each month from you. Then when your homeowners' insurance or property taxes are due those bills are paid from money in the escrow account. If there is extra money in the account it may be returned to Jim periodically. But, if there isn't enough money to pay for insurance or taxes he'll be asked to make up the difference and increase the amount that he puts into the escrow account each month. Another part of your mortgage check could go to "private mortgage insurance" or PMI. If your down-payment was less than 20% you were probably told that you'd need to buy PMI. That's an insurance policy that pays the mortgage company if you default on the loan. Now let's look at whether any extra money should go to principal or escrow. And the answer is that depends on what he wants to accomplish with it. Perhaps he's afraid that the escrow account won't have enough money to pay for increased property taxes. Then he might want to put some extra in now so that he doesn't have to worry about coming up with the money later. But, if he's not concerned with the escrow account, he should earmark the extra amount to principal. The reason is simple. Prepaying your mortgage is one of the best ways to accumulate wealth. Consider an example. Suppose that Jim had a 30-year 7% mortgage with a monthly payment for principal and interest of $665. If he were able to put $1,000 toward principal next month it would shorten his mortgage by one year. Or, suppose that he'll be selling the house in 7 years. In that case, he'll have $1,700 more when he walks away from the closing table. Prepaying your mortgage is often the best investment you can make. You're guaranteed a rate of return equal to the mortgage interest rate. And, if you ever need to get the money back, it's fairly easy to take out a home equity loan or refinance your home. There are some other things that Jim should do to manage his mortgage. The first is to eliminate PMI as soon as he can. If his equity is greater than 22% federal law says that he cannot be forced to buy PMI unless he's been late with his payments. Jim will need to monitor this himself. There's two ways that his equity can increase. Either by gradually paying off the mortgage principal amount. Or, by the value of the house going up due to rising real estate prices. When he gets over 22% equity, Jim will want to contact the mortgage company and cancel PMI. This is also a good opportunity for Jim. He can take the money that had been going to PMI and redirect it to prepaying principal. His payments will remain the same, but his mortgage will begin to shrink. Jim also needs to manage his escrow account. Many communities give a discount if you pay your property taxes early. Or, penalize you if you don't pay on time. Make sure that the mortgage company is taking advantage of any discounts available to you. Remember that your mortgage is one of thousands that they manage and clerical mistakes commonly occur. It's also a good idea to regularly shop your homeowners' insurance. Just because it is being paid from the escrow account doesn't mean that you aren't allowed to find a lower rate and change insurers. Finally, be aware of the different types of mortgages available and refinance if that works to your advantage. The time when Jim could take a mortgage, make monthly payments and forget about it are over. Managing his mortgage is an important part of building wealth. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher Website You'll find hundreds of articles to stretch your day and your dollar. Visit today! Permission granted for use on DrLaura.com. More >>

PERMALINK | EMAIL | PRINT | RSS  Subscribe
Stay Connected
or connect at a place below
Normal Gear
Latest Poll
Do you treat each of your children equally?
Yes
No
Unsure
Archives  |  Results
Programs
About Dr. Laura
Letters
E-mail of the Day
From Listeners
Audio & Video
YouTube Videos
Stay at Home
Parenting
Relationships
Simple Savings
Work at Home
Tip of the Week
Subscription
Membership
Help & Support
Family Premium Help Center
Podcast Help
Contact Us
Legal
Terms of Use
© 2014 DrLaura.com. Take on the Day, LLC
Terms & Conditions  |  Privacy Policy
Powered By Nox Solutions