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Simple Savings
05/07/2010
IconTackling Back-To-School Expenses Homebodies www.homebodies.org By Cheryl Gochnauer Copyright 2003 Just when I#146;d settled into my summertime routine, the ads started blaring: #147;The first day of school is right around the corner!#148; According to local retailers, it#146;s time to hit the stores in search of the perfect everything. In the face of this media blitz, my one-income budget demands a clear head and a bit of creativity as I begin gathering true essentials for the coming school year. SCHOOL SUPPLIES. Thanks to discount stores like Wal-Mart, K-Mart and Target, school supplies aren#146;t too scary. Since everybody needs them, competition is fierce. They#146;re practically giving away glue, markers and folders, hoping that you#146;ll pick up a backpack or two while you#146;re there. Resist the impulse and recycle last year#146;s more expensive items whenever possible. Use coupons and bring competitor#146;s fliers for price matching. Keep your eyes open for rebates, which are very common this time of year. CLOTHES, COATS AND SHOES. Hopefully you remembered to purchase the kids#146; fall and winter coats last spring at the 70 percent-off sales. If not, it#146;s not too late to scour neighborhood garage sales in search of a gently-used jacket. Since jeans are the uniform of choice for most students, watch sales. Recently I spotted flares at Wal-Mart for my 5th grader - $15 jeans marked down to $10, then $7, then $3 each. I grabbed five pair and headed to the registers, where they rang up at ONE DOLLAR EACH. (God bless Sam Walton!) EXTRACURRICULARS. There#146;s not much lee-way in dodging sports and band fees, but you may be able to save on the uniforms and instruments. Check the classifieds for second-hand items. Email friends and classmates to see if anyone has something you need for sale. Ask coaches and tutors for leads on used equipment. If there#146;s a good chance your child will be on the same team next year, allow some growing room. Buy a little big; there#146;s a good chance that soccer or cheerleading outfit will work for two seasons instead of one. FUNDRAISERS. Most schools kick off with some type of fundraiser. Parents, I hear those groans! But don#146;t turn away every kid who knocks on your door, because they might be peddling something that benefits YOU as much as their sports or drama team. I#146;m talking about those Entertainment and Gold Coupon books (and their many clones). I love these buy-one, get-one-free deals. They allow me to splurge on a night out or fun fest #150; at half-price. The books usually pay for themselves the first time I use them. Hint: Think through fundraisers before pitching products to your neighbors. To offset cheerleading costs, I bought 20 fundraising coupon books at $1 each #150; which my daughter was then supposed to sell for $5 apiece. (She would pocket the extra $4 per book, clearing a total of $80.) But each book #150; which offered discounts at my favorite grocery store #150; included a #147;$5 off the total purchase#148; coupon, along with another $50 or so in additional savings. Since I shop at that store every week, I gave my daughter $80 toward her uniform, kept the books and used the coupons myself. The $5-off coupons alone saved me $100, plus I saved hundreds more with the remaining coupons in the 20 books. Next year, I#146;ll buy FORTY books and double this year#146;s savings! MORE QUICK TIPS: If your kids don#146;t take the bus to school, carpool with other families. (That goes for before and after school practices, too.) Most days, have children take lunches instead of buying at the cafeteria. Get required vaccinations through your local county health department, where shots are often offered at a discount or free. If you#146;re paying tuition, work part-time or substitute at the school to offset expenses. (It#146;ll make it easy to pop in on their class parties or keep an eye on your teen, too!) Comments? Email Cheryl@homebodies.org or visit www.homebodies.org to read more articles relating to at-home parenting. Copyright 2003 Cheryl Gochnauer. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconHow 'Charge Offs' Effect You The Dollar Stretcher by Gary Foreman gary@stretcher.com Can you describe or define what the term "charge off" means concerning credit cards and credit reports? I am seeing it quite often and do not quite understand what it signifies. Thanks for your help. Patty Louisiana Patty's right. You are seeing the term "charge off" more frequently. That's because about 1% of all credit card debt is ultimately charged off. And, whether you struggle to make credit card payments or you have a perfect credit history, charge offs will effect your finances. Let's begin by finding out what a charge off really is. Wachovia Bank offered a good definition on their website: wachovia.com : "The removal of an account from a credit card issuer's books as an asset after it has been delinquent for a period of time, usually 180 days. When an account is charged off, the credit card issuer absorbs the outstanding balance as a loss." For those of you who don't speak 'financialese' that means that a 'charge off' or 'write off' is really just an accounting entry. The lender is saying that they don't expect to collect the debt and are not willing to claim it as an asset of the company any longer. But it will not affect whether the borrower still owes the money. A charge off does not free you from the debt. Think of it this way. Suppose you borrowed $100 from Joe. After a year passes he doesn't really expect to get his money back. Mentally he's 'written off' the loan. He doesn't believe that your IOU has value any more. But, that doesn't mean that you don't still owe Joe $100. You do. In fact, in the world of credit card debt it's possible that it will be harder to avoid paying the debt after it has been written off. That's because the original lender often sells those debts to a third party when they write them off. And the third party, often a collection agency, gets to keep any money that they collect. So they will work very hard to collect as much as they can. Even if that means using questionable pressure tactics. Note that it's the lender who gets to decide whether to write-off a debt as being uncorrectable. You may have lost your job six months ago and not made a payment since. But you really plan on making one next month. That doesn't prevent the lender from writing off the debt. On the other hand, in approximately 50% of the cases charge offs occur when a borrower declares bankruptcy. Between one and 1.5 million people declare bankruptcy each year. Their bankruptcy triggers the charge off. So what happens to your credit rating when your card balance is written off? Thirty-five percent of your credit score is based on past payment history. A 'charge off' is about the worst mark that you can get on your credit report. It says you are someone with a history of not paying their debts. And you don't need a charge off to be penalized. If you struggle to make your minimum payment, the fear of a write off will cause the credit card company to raise your interest rate. Based on a borrower's payment history they can predict when someone is becoming a high risk. When that happens they'll increase the interest rates on the account very quickly. That costs you more money every month. OK, what happens if you always pay your bills on time? Unfortunately, you're still effected by charge offs. The credit card companies expect that some loans will not be repaid. So in an effort to stay profitable, they have to charge everyone a little higher interest rate to make up for the losses. So everyone who uses a charge card makes some small contribution. One final issue. If you do have a charge off on your record you might want to consider repaying the debt if you have the money. Negative remarks will be stay on your report for 7 years. You may be able to negotiate a deal where you pay the debt and the lender changes the status of the account to "Paid as Agreed". If you attempt to do this, make sure that you get the agreement in writing. Thanks to Patty for a good question! Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website: www.stretcher.com and ezines. You'll find thousands of articles to help you save time and money. copyright 2003 Dollar Stretcher, Inc. All rights reserved. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconHealthier First Birthday Cake Ideas By Cheryl Tallman and Joan Ahlers www.FreshBaby.com Parents are often looking for a healthy alternative to the standard, sugary, preservative-filled birthday cake for their baby's introduction to the wonderful traditions of birthdays. We've heard from parents looking for ways to buy an egg-free cake, to those seeking recipes for "healthy" cakes, or even whether to make/buy two cakes (one for Baby, one for adults). To answer the last question first - there is no reason to create extra work for yourself, make or buy one cake, relax and congratulate yourself for making it through the first year! Most people will be gracious guests and enjoy whatever is served. And let's not lose sight of the real reason for the birthday cake - THE PHOTO. We do it all for the precious scrapbook shot of your cake-faced little one delighting in being the life of the party! Here are some ideas that keep the tradition of the birthday cake treat, but add some healthy twists (you can use these ideas for any age!): Egg-free: If your baby has not been introduced to whole eggs by their first birthday, this is probably not the occasion to give them a try. Many egg substitutes contain eggs, so to be safe, look for cake and frosting mixes labeled "vegan" which are free of all animal products. You'll need to go to a health food store to find these products. Or jump on the Internet, Vegan Baker is one company that offers cake and frosting mixes. If baking is not for you, many urban cities also have vegan bakeries too - check the Yellow Pages or ask someone at a vegetarian restaurant. Healthier cake flavors: If you decided on a traditional layer cake or cupcakes, there are healthier cakes choices over the standard white or chocolate layer cake varieties. Some cake flavors to consider include banana cake, applesauce cake or carrot cake. Cakes than contain fruit usually have less sugar. Made from scratch, a mix or from a bakery, they are a step up on the healthy scale. Frosting: You must have frosting for the photo! Healthier frosting choices can include organic yogurt thickened with cream cheese or a traditional cream cheese frosting. The ultimate substitute for sugar-laden buttercream is whipped cream. Homemade whipped cream is pretty simple to make and just a couple tablespoons of sugar will sweeten it. Homemade Whipped Cream 1 cup of heavy cream 2 Tbsp sugar 1 tsp vanilla Directions: Chill the heavy cream for 24 hours in your refrigerator. Pour heavy cream in a chilled, large, deep bowl. Using a hand mixer, beat the cream on high until it thickens. Add the vanilla and sugar, and continue beating until soft peaks form. To test the whipped cream, stop the mixer and pull up the beaters, if the cream forms little mountains that stand up, then the whipped cream is done. Makes 2 cups and must be refrigerated. Forego the frosting: You don't really need frosting to have a good time. Make an applesauce cake and dust it with powdered sugar. To jazz up the look, make or buy a stencil and lay it on the top of the cake. Using powdered sugar and a sifter, dust the top of the cake. Carefully remove the stencil - Viola! An impressive presentation and low in sugar too! Go for cool: While a Mississippi Mud Pie is not a healthy ice cream choice, you can make or buy a frozen yogurt cake. Many ice cream shops also have wonderful choices in fruit sorbets too. A cake made with frozen vanilla yogurt and mango sorbet is a great treat for all ages. About the authors: Cheryl Tallman and Joan Ahlers are sisters, the mothers of five children and founders of Fresh Baby. Creators of products that include the So Easy Baby Food Kit and Good Clean Fun Placemats; Fresh Baby offers parents convenient and practical support in raising healthy children. Visit them online at www.FreshBaby.com and subscribe to their Fresh Ideas newsletter to get monthly ideas, tips and activities for developing your family's healthy eating habits! Fresh Baby products are available at many fine specialty stores and national chains including Target, Wild Oats, and Whole Foods Markets. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconQuit My 401k? The Dollar Stretcher by Gary Foreman gary@stretcher.com Gary, Like a lot of people, I'm not happy with the way my 401k plan is doing right now. I have not lost a great deal of money like some my friends have. However, I have been wondering if I should pull out of it right now and then maybe later start up on the plan again. I have a friend who decided that he was just wasting too much money by investing in the 401k that he stopped contributing to it. The way the economy is going right now I might better off to keep what I make and even though I would have to pay taxes on it, at least I would still have some left over. What do you think? Ruben in Florida Ruben is not alone. Most everyone with a 401k plan invested in the stock market has suffered some decline in the value of their account. So it's only natural to wonder if it's wise to continue contributing to an account that seems to keep losing money. Ruben is really asking three questions. Should he take all of his money out of the account? If not, should he continue to contribute? And, is there some way to improve the performance? Before we begin, let's make sure that everyone understands that a 401k plan is an account that allows workers to contribute to their own retirement plan. The money that they contribute is deducted from their pay and is not taxed as ordinary income. Many employers match a portion of the employee's contribution. The combination of tax advantages and employer matches allows money to be saved much more rapidly than would otherwise occur. Now for the first question. Should Ruben close his account. There are exceptions, but for most people who are still working closing out their 401k plan would be a bad idea. Withdrawing before you reach age 59 1/2 is expensive. Not only will Ruben have to pay a 10% penalty, but all pre-tax contributions will be added to his income to be taxed. So, depending on his tax bracket, Ruben could see one quarter or more of his 401k go to the government. A much bigger loss than any likely stock market drop. The money withdrawn will need to be invested somewhere. For the most part he'll end up with the same investment vehicles (stocks, bond, CD's, annuities, money funds) as inside the plan. They won't perform any better outside of the 401k than they did before. In fact, they'll grow more slowly since interest, dividends and capital gains are subject to taxes each year.So Ruben shouldn't sell out. Should he continue to contribute? John Bogle was one of the pioneers of the mutual fund industry. In his book "Commonsense on Mutual Funds" he studied returns based on the Standard Poor's Composite Index. From 1927 to 1997 the return over any 10-year period averaged 10.3%. The only negative 10-year return was for the period beginning in 1930 and that produced a -0.8% result. What's the message for us? That unless you'll need the money soon, it should be worth more if you leave it invested. Time is the best friend an investor or saver has. A 401k plan is designed to take advantage of time and also of an investment strategy called dollar cost averaging. That's where you invest the same amount of money regularly. You'll actually accumulate more money if stock prices drop periodically. That's true because your regular investment buys more shares when prices are lower. So market dips are a great time to buy. Selling now would be an emotional response. Professional investors will tell you that emotions are dangerous to your financial well-being. Also, unless Ruben's a very disciplined person the money that had been going into the 401k will simply disappear. Adding that money to his take-home pay is an invitation to spend it. Can Ruben improve the performance of his account? Although the 401k's do limit your investment options, he does have some choices. When the stock market was roaring many people liked to brag how well their stock picks were doing. But, that's not the purpose of your 401k plan. Your goal is to gradually increase wealth over a longer time frame so that it's available at your retirement. His best strategy will include a mixture of investments. Ruben might want to study something called "asset allocation". It's understandable that Ruben is concerned with his 401k plan. But bailing out is probably the wrong answer. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher : www.stretcher.com website and ezines: subscribe@stretcher.com copyright 2003 Dollar Stretcher, Inc. Permission granted for use on DrLaura.com More >>

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05/07/2010
IconPersonal Loan After Bankruptcy The Dollar Stretcher by Gary Foreman gary@stretcher.com I've filed bankruptcy about a year ago. I understand that a secured credit card would help to re-establish my credit. What I want to know though is that even if I've filed bankruptcy, is it possible for me to obtain a personal loan? If so, do you know of any establishments that would offer loans to someone who has filed bankruptcy? Thank you, Vi With about 1.6 million personal bankruptcies occurring in the last year Vi has company. And, in a society where the availability of consumer debt is assumed, she's got a real problem. Before we get into specifics, let's learn a little about credit and debt. The first known use of credit was about 3,000 years ago in Assyria, Babylon and Egypt. It appears that debt came to American with the Pilgrims. They consolidated their debts in London and made four installment payments. Store credit was common all the way back in colonial times and has been popular throughout our nation's history. Many items, including sewing machines and vacuum cleaners, were introduced into our homes on the installment plan. The first credit card came out in 1951 and was only good at 27 New York restaurants. Once the magnetic strip was introduced in the early 1970's the use of credit cards skyrocketed. But, having all the credit available has a dark side. Some people take on too much debt and have trouble repaying their loans. Thus the need for bankruptcy protection. Our current bankruptcy law was passed in 1978 and amended in 1984. We've come a long ways from the debtor's prisons that existed until the early-1800's. Yet, even today you can land in jail for committing debts of fraud and child support. With a few exceptions (student loans, child support and alimony), bankruptcy wipes out all debts. That's the good news. But, as Vi's found out, the bad news is that a bankruptcy is the worst thing that you can have on your credit report. Depending on the circumstances it can remain there for up to 10 years. So where does that leave Vi. She's looking for a personal loan. Hyperdictionary.com defines a personal loan as "a loan that establishes consumer credit that is granted for personal use; usually unsecured and based on the borrower's integrity and ability to pay". So the lender doesn't have anything to repossess. Just Vi's promise that she'll repay the loan. And by declaring bankruptcy before, she's already demonstrated that she's willing to walk away from her debts. Can Vi find someone who will give her a personal loan? Yes, possibly she can. But unless she borrows from a friend or relative, she can expect to pay much higher rates than someone with an average credit report. Where would Vi find a loan? She might want to try online using a search for "subprime personal loan". Or look for a business that offers 'payday loans' or 'signature loans' locally. But a better question for Vi to ask is should she take the loan if she can find it. And the answer in almost all situations is no. First, she'll be paying very high interest rates on the money she borrows. That means that she can't afford to borrow except for a very short period of time. Second, it makes it harder to repair her credit rating. As she pointed out, she needs to get a secured card to begin the rebuilding process. A secured card will require her to save money first and then deposit it on account. A personal loan with a high rate of interest will make it impossible for her to save the money needed to obtain a secured card. That means she's going backwards. Vi didn't say why she wanted the personal loan. But unless it's absolutely vital, she'll be better off avoiding a personal loan at this time. That probably means not buying something that she really wants or may even feel that she needs. And, that's hard. But given her circumstances, borrowing money today could make the future just that much harder. Which is probably something that Vi really doesn't need. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website: www.stretcher.com You'll find the web's largest collection of free time and money saving articles. Visit today! More >>

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05/07/2010
IconAffording a First Home The Dollar Stretcher by Gary Foreman gary@stretcher.com Can you help me? My husband and I would like to buy our own home to live in. How do we know if we can afford one or not? Thanks, Donna Donna's smart! It's always better to find out if you can afford something before you begin seriously shopping. And with low mortgage rates and home prices going up, many people are wondering if they should buy their first home now. So how does Donna determine if they can afford to buy? Answers to a couple of questions can help them decide. First, do they have enough savings to get into a home? Second, can they afford the regular, ongoing monthly expenses. Let's begin with the first question. How much would it take for them to get into a home? Affording a home means more than having enough cash for a down-payment. Initially Donna will need enough savings to cover a down-payment, the closing costs and some initial expenses like utility deposits. She'll also need some cash for some of the expenses that come with a first home. Things like a lawnmower, ladder and basic lawn implements. Homecenters love first-time homeowners! Naturally, the down-payment is the biggest item. It usually runs from 5% to 20% of the price of the home. You can even find some deals with 100% financing, but Donna can expect to pay higher interest rate if her down-payment is lower. She probably should plan for about 10%. Many mortgages have fees or "points" associated with them. It's not unusual for that to add 2% to the amount that she'd need at closing. Closing costs vary by locale and by what you negotiate in the contract. She can use 3% as a guesstimate, but that could be off by as much as 2% depending on the circumstances of her contract. Some places customarily allocate more expenses to the buyer than other places. Donna should ask someone in the real estate industry what costs are typically paid by the buyer in her area. A few quick calls to the utility companies should give Donna an idea of any deposits or set-up charges that will be required. Once Donna has determined if they have enough money to get into a house, she'll need to figure out if they can afford to hang onto it. Most experts say that housing expenses shouldn't exceed 35% of your after-tax, spendable income. Donna can calculate her annual after tax income using her payroll check information. In fact, unless she got a large IRS refund or had to write a large check last April, she probably can use the net figure from her paycheck. All she needs to do is to figure out how many paychecks she'll get in a year and then multiply her after-tax pay by that number. Another benchmark that some advisers use is to total all debts and then compare that to income. The reason is simple. The part of her paycheck that Donna has already committed to car payments or credit card minimums is not available to pay the mortgage. Typically experts suggest keeping total debt payments to less than 40% of Donna's income. If her estimate of a mortgage added to her existing payments exceeds 40%, she might be wise to try to pay down some debt before she begins house hunting. There's another more accurate way to gauge Donna's ability to handle the monthly expenses. That's to create a "make believe" budget that included a house payment. She would take her current budget and just replace her renter's expenses with the mortgage payment and other homeowner's expenses. Don't forget to include taxes, insurance and some money each month for home repairs. If Donna is close but can't quite get the numbers to work, she could check out some lower cost alternatives. Foreclosures or "handyman's specials" could offer an opportunity. She might also want to consider buying a duplex and renting one side while living in the other. Finally, if she does decide to buy, Donna will want to check her credit report before she begins shopping. That will give her an idea of how she'll look to a mortgage company. A FICO score of over 700 should put her in good shape. She'll be able to find a mortgage with a score in the 600's or even 500's, but the interest rate will be higher. She should also check her credit report for errors. About 25% of all credit reports contain an error significant enough to effect the interest rate on a mortgage. If Donna finds an error she'll want to get it corrected before she begins shopping for a home or a mortgage. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website: www.stretcher.com and newsletters: subscribe@stretcher.com copyright 2003 Dollar Stretcher, Inc. Permission granted for use on DrLaura.com More >>

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05/07/2010
IconA Dozen Cheap Thrills: Family Entertainment on a Budget Copyright Deborah Taylor-Hough Used with permission on DrLaura.com. All rights reserved. hometown.aol.com/dsimple/ Frugal living and family entertainment often feel like termson the opposite end of the spending spectrum. But ifmoney's tight, it's important to plan some fun into thosesunny weekends and summer vacation, otherwise lifecan get a bit dull and frugal living can seem more like astraight-jacket rather than a means to help you reachyour financial goals. Here are a few simple ways to save a few pennies oncommon entertainment expenses: Be patient and wait to see new movies on video. Somecommunities even offer free video rentals at local librariesand will order new movies if library patrons request a certaintitle. Check to see if there are any discount movie theaters inyour area. Most of these places show movies just beforethey're released to video. A family of four can go out foran evening at the movies and only spend around $10 fora fun family outing. Keep a list of movies you want tosee, and then check the discount theater listings eachweek. These theaters often keep the movies for justone or two weeks, so stay alert to what's playing. Go to the first show of the day at first-run theaters forthe best prices (and shortest lines!). Check your area for free days at museums, zoos, etc. Rather than buying separate admissions to differenteducational or fun family destinations, buy one yearlyfamily pass to either the zoo, the aquarium, or a themepark. Go repeatedly to that one place each time youwant a family outing. You will easily save the cost ofthe family admission, plus you'll have the benefit of notfeeling pressured to see everything in one day. Youcan always see what you missed the next time youcome. Next year, buy a pass somewhere else. Check for free concerts, plays, and other live familyentertainment in local parks. Call and find out if your local college stage productiongroup, ballet or orchestra will let you watch them rehearsefor free. If you want to eat at an expensive restaurant, go forlunch rather than dinner. The menu is usually the same,but the prices are often half. When dining out, drink water only. Ask for a lemonor lime wedge if you want to make your drink seemspecial. This trick can easily cut $10 off your family'stotal dining bill, which could mean the difference betweengoing out for a fun meal or staying home eating frozenegg rolls again. Go fly a kite. Literally! Make the most of any available student discounts.Show your child's school ID at museums, zoos, galleries,theaters, etc. Instead of an expensive day of professional sports,go to a high school or community college game. ABOUT THE AUTHOR: --Deborah Taylor-Hough (wife and mother of three) is theauthor of 'Frozen Assets: How to Cook for a Day and Eatfor a Month' and the newly released, 'Frugal Living ForDummies(r)' (Wiley, 2003). Visit Debi online for morearticles and tips at: hometown.aol.com/dsimple/ More >>

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05/07/2010
IconDivorced Stay-at-Home Mom The Dollar Stretcher by Gary Foreman gary@stretcher.com Gary, Do you think it is realistically possible for a divorced, single Mom of a 15, 12, and 6-year old to stay home with her children? I do not have a profitable skill, a degree or money in the bank. All I know is that a tired, stressed-out mother is not what I want for my kids. They deserve more of me. I currently hold a temporary job that has lasted over a year so far. It covers the monthly expenses, including car payments for a pre-owned car I just purchased this past November. Their Dad kicks in his share, but not enough for us to live on alone. Any suggestions? Sue Sue has plenty of company. Over 1 million couples get divorced each year and roughly one third of all families are headed by a single parent. According to Raise the Nation, an advocacy group, there are over 13 million single parent households raising 20 million children. They also estimate that only 1/4 receive full child-support. So is it possible to Sue to get by financially without working? Probably not. Studies indicate that financial problems are one of the biggest hurdles for single parents. In fact, according to the Bureau of Labor Statistics nearly one half of all single mothers have more than one job. Talk about stress! With a little work Sue can determine whether it's possible to survive without a job. If she doesn't already have a budget, she'll need to create one. Having a budget is a good idea whether she tries to stay-at-home or not. It's important to know how much income you have and where it's going. And Sue's stress level will go down once she knows that her expenses don't exceed her income. The next step is to adjust her budget as if she wasn't working any more. How much income would she lose? And, how many of her expenses could she reduce if she were staying at home? The exercise isn't exact, but it will give her a pretty good idea of whether there's any possibility of staying home. Chances are that she'll find that staying home isn't financially feasible. But Sue shouldn't give up if she can't stay home. There are other ways to reduce stress. The first step is to guard against depression. A divorced person is three times more likely to suffer from depression. Fortunately, doctors are better at identifying and treating depression than in previous generations. A single parent must stay organized. There simply isn't time to look for lost keys. There are many resources that can show you how to get things under control. Organization can bring a sense of serenity to a home. Train your children to help. Even preschoolers can learn their colors by helping to sort laundry. You're not cheating them by teaching them to cook and clean. In fact, you're preparing them for adulthood. And, sharing tasks is often the real quality time that they'll remember years later. Also remember that children aren't damaged because they don't have everything that their friends have. Despite what the advertisers or your kids say. Sue will be well served by spending time with other adults. A lack of adult friends breeds depression, fatigue and fear. A mentor could be valuable to Sue. Someone who has been a single parent and knows the challenges. Same thing with a good friend. Knowing someone in similar circumstances puts your own situation into perspective. Being able to help them, and be helped by them can be beneficial, too. And don't limit the friendship to talking. Cooking an extra meatloaf to share with your friend will relieve their mealtime stress one day! If Sue finds that she's still overwhelmed, she might want to consider sharing housing with another single mother and her children. By sharing cooking, cleaning and shopping chores the two mothers regain some of the advantages of a two parent home. Finally an editorial comment. In recent decades people have laughed at the notion of 'staying together for the children'. After hearing of the struggles of single parents like Sue maybe it's time to reconsider the idea. That isn't to say that people should stay in an abusive relationship. But perhaps trying to tolerate a troubled marriage is less painful and takes less effort than trying to raise children alone after a divorce. Hopefully Sue will find the resources to live comfortably and enjoy the years she spends raising her children. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website www.stretcher.com and newsletters subscribe@stretcher.com Copyright 2003 Dollar Stretcher, Inc. all rights reserved. Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconUsing ROI (Return On Investment) at Home The Dollar Stretcher by Gary Foreman gary@stretcher.com Gary, I once read about using ROI to determine whether a certain purchase was saving time, energy, or money. Could you write up a story with the ROI formula and how to use it? Wendy Wendy has a good idea. Adapting business tools to your home finances often helps take the emotion of out of a decision so that you can make a logical choice. The idea of ROI (Return On Investment) is fairly simple. A business investment should save or make money. The ROI calculation is an attempt to determine how much each dollar invested will return. If a business has limited resources only the highest ROI projects would be financed.To calculate the ROI you take the value of the benefits and divide by the value of the costs. When professionals use these tools they'll often use complicated formulas that take into account that having $1 today is worth more than one you won't get until next year. Fortunately, in most home applications that's simply not necessary. Let's suppose that a business could make a $500 investment that would produce $700 of extra profits. The benefits are $200 ($700 extra profits minus $500 invested). Divide the benefits by the investment ($200 / $500 = .4) to get an ROI of 40%.The obvious shortcoming of the model is that you need to make some assumptions as to how much you'll save. So many businesses also consider how long it will take to recover the initial investment. That's called the 'payback period'. Let's see how it works. First, an easy one. You compare the yellow energy efficiency label from your 12-year old refrigerator to one on a brand-new model. According to the labels you should save $65 per year in electricity. The new refrigerator costs $449. If you use the new fridge for 12 years you'll save $780 ($65 x 12 years). So the ROI is 73%. ($780 - $449 = $331 and $331 / $449 = 73%) That's interesting, but should you buy the fridge? You might get a more useful answer by considering the payback period. If you save $65 per year and pay $449 for the refrigerator, it will take 6.9 years before you've recovered the cost of the fridge ($449 / $65 = 6.9 years). So unless you plan on using it for more than 7 years you should pass up the purchase.Next, let's look at a case that most homeowners are familiar with. You've been in your home a couple of years and mortgage rates have dropped. Should you refinance to take advantage of the lower rates? To answer the question let's consider the payback period. Begin with the cost to refinance. That's the investment. Next, how much you'll save each month (AKA: the benefit). Then you can calculate how long it will take to make up the cost. Suppose that refinancing triggers $3,000 in various costs. But, you'd save $125 per month. You could calculate that it would cost you 24 months before you had recovered your investment ($3,000 divided by $125 = 24 months). So if you'll be in the home more than two years it's a good idea to refinance. One final example. You'd like to replace that old 9 MPG gas guzzler. The new car you like gets 23 MPG. With gas prices so high doesn't it make sense to spend $19,000 to trade for the new car? We'll begin by figuring out how much we'd save each year. You drive 18,000 miles each year. So the old car uses 2,000 gallons of gas (18,000 / 9 MPG). At $1.50 per gallon that's $3,000. The new car would only use 782 gallons or $1,174 per year. So you'd save $1,826 per year ($3,000 - $1,174). Your insurance would also drop by $200 per year. That brings the total savings to $2,026 per year. So what's the payback period? Divide the trade-in price of the car ($19,000) by the annual savings ($2,026) and you get 9.3 years. So you can't justify this car trade based on gas savings. You'll notice that in each case you need to think through the process a little. Usually the hardest part is estimating how much you'd save with the new item. Just remember that this isn't an exact science so do the best you can with any assumptions. Many spending decisions are hard to analyze. You can use this same process to calculate whether it's worthwhile buying compact fluorescent bulbs or a new furnace. By breaking a decision down into an ROI or payback type of calculation you'll have a framework for making a better decision. Gary Foreman is a former purchasing manager who currently edits The Dollar Stretcher website www.stretcher.com and ezine . Permission granted for use on DrLaura.com. More >>

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05/07/2010
IconPiggyback Mortgages and PMI The Dollar Stretcher by Gary Foreman gary@stretcher.com Dear Dollar Stretcher, We have a new home under construction. After paying off debts we don't have enough for the 20% down payment to avoid PMI. I am trying to compare a low fixed rate 30 year mortgage to an 80/15/5 mortgage where the PMI is waived. Is an 80/15/5 mortgage a good deal for the borrower or just for the lender? Most of the info I found was from brokers. It is hard to be too confident about their information since they are selling the product. Rob in Texas Like many people, Rob is anxious to enter the housing market. Low interest rates make mortgages more affordable. But they also drive up housing prices. Which means more people are having trouble saving an adequate down payment. Let's begin with a couple of concepts. Private mortgage insurance (PMI) helps people to buy homes when they have a small down payment. PMI does not protect the homeowner even though they pay for the insurance. It covers the mortgage company if the borrower stops paying. PMI may require an initial payment and/or a regular monthly payment. A smaller down payment means a higher PMI premium. Typically, the homeowner is allowed to cancel PMI after they have equity in their home of 20%. They can build equity by paying down principal or by seeing the value of the home appreciate through rising prices. As you would expect, everyone wants to stop paying for PMI as soon as they can. Which brings us to the "piggyback" or combination mortgage. How does it work? The first mortgage company provides a mortgage for 80% of the property. A second mortgage company that doesn't require PMI grants another mortgage for 15%. That leaves the buyer to come up with the final 5% as a down payment. It's like getting a 95% mortgage without PMI. Thus the 80/15/5 description. There are some variations on the piggyback. Some are 80/10/10. Others even ask the seller to come up with the final 10% so that the buyer needs no money down. Why would Rob use a piggyback? Mortgage payments are tax deductible. PMI payments are not. If you pay off your 2nd mortgage early, you can reduce your monthly payment. Sometimes the seller is willing to carry the second mortgage at rates lower than traditional lenders. But, Rob is right. There are some disadvantages that often get overlooked. Second mortgage rates are typically higher than those charged on first mortgages. It's possible that the combined mortgage payments could be higher than a single mortgage plus PMI payment. The second mortgage will have a second set of costs associated with it. Some even carry a prepayment penalty. And, second mortgage payments will continue until that loan is paid off. PMI can be cancelled when your equity reaches 20%. Rob also should beware of 'balloon payments' on the second mortgage. He may be offered a loan that's amortized over 30 years. In other words, the payments are calculated as if you'll be making them for 30 years. That makes for low monthly payments. But at some point in the future (usually 10, 15 or 20 years) the balance of the loan is due. That balance is the 'balloon'. And the homeowner is required to come up with the cash or refinance at that point. So which is best? In part it will depend on the rates that Rob will be offered on first, second and PMI. He'll also need to consider how long it will be before he has a 20% equity in the home and can cancel PMI. Rob can take that info and estimate what his payments will be in future years. Unfortunately predicting the future isn't an exact science. So there is no one correct answer. Finally, a warning to Rob and others with small down payments. Housing prices can decline. One industry study estimates that there's roughly a 6% chance that housing prices could drop 10% in the next two years. When interest rates rise people will not able to afford as much housing. For instance, if rates rise from 6% to 7%, a buyer can only spend 90% of what he could at the lower rate. So the check that paid for a $200,000 mortgage now becomes the payment for a $180,000 loan. That could hold down home prices. Many people are familiar with the concept of being 'upside down' in a car loan. That's where they owe more money than the car is worth making it difficult to sell or trade the car. Being upside down in a mortgage could be significantly more painful. Imagine that you've lost your job and need to move to a new city to regain employment. But the only way that you can sell your home is to bring a check for $10,000 to the closing because you owe more than it's worth. For many that would be an impossibility. So please move cautiously if you're buying with a minimal down payment. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website: www.stretcher.com and ezines Copyright 2003 Dollar Stretcher, Inc. all rights reserved. Permission granted for use on DrLaura.com More >>

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