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Posted under Simple Savings
05/07/2010
IconOvercoming Financial Fear by Joan Sotkin www.ProsperityPlace.com Fear is one of the most prevalent emotions that people express about their financial position. Some are in a panic, others have an underlying fear, or free-floating anxiety, about their financial situation. On a day-to-day basis, there is often anxiety about not having enough for necessities, either today or in the future. When it's bill-paying time, panic, dread, and even physical discomfort are not unusual. Taken to the extreme, people contemplate suicide as a way out of their financial problems. Often, people just can't see a way out of their financial situation. Feelings of being trapped and frustrated are common. Internal dialog often includes, "What's the matter with me? Why can't I get my financial act together when so many other people can?" Let me assure you that no matter what your level of financial anxiety, there IS a way out. A powerful antidote for fear is action. Taking action allows you to feel more in control of your situation and you can work towards a solution. As long as you allow fear to paralyze you, nothing will change. If you keep on doing what you are doing, you will keep getting what you already have. Whatever you are doing now is your habit. You probably have a financial pattern that keeps repeating itself. The goal is to break the habit and create a new, healthier habit. Is it easy? No. You've created a groove and your life goes around and around in that groove. Creating a new groove takes a strong willingness to change and the determination to work through your own resistance. The longer you have been in the grove, the more effort it will take to get out of it. Can you do it quickly? Probably not. It takes time to work through old patterns, and it is a complex process. But if you don't start, you will never move forward. It's not as if you have to wait until the process if over to see change. Change happens the minute you start. There is one thing you can be sure of: if you set your mind to become comfortable financially, and you are willing to work on it a little every day, you can do it. I'm going to ask you to agree to believe one thing: There is a solution for you and financial comfort and security are possible for you. You don't have to know how it is going to happen, you just have to agree to believe that it is possible, and then to act as if it will happen. Here's where the action part comes in. You are going to get yourself ready for financial success. Some of your actions will appear to have nothing to do with money. That's because your financial situation is an extension of your thoughts, beliefs and emotions (TBE's) as well as the energy you generate -- in all areas of your life. While you are working through the process, you will have to deal with the voice inside that is going to try to keep you where you are. Worry and fear will keep coming back. When you feel yourself starting to worry or give in to fear, it's time to do something else. After all, the worry and fear are only in your mind. You have the option of filling your mind with something else. When you thoughts are positive fifty-one percent of the time, you are moving in a positive direction. Affirmations are great. They can help you reprogram you subconscious to act on a more positive set of beliefs. Here are some actions I suggest you take. Take an inventory of your life and current financial situation. Raise your awareness about where you are so you can evaluate your current position and create a plan for change. Take a good look at your money - your earning and spending. Doing this, no matter what the situation, allows you take control of your financial future. Set realistic goals based on your personal values. This helps you create a strategy for change that will be in tune with who you are -- and who you want to become. Learn about money and investments. For a lot of people, this isn't easy. There seems to be so much to learn. Start with small things such as reading the financial section of a newspaper or magazine. Don't try to understand everything, just read it to get familiar with the terminology. Ignore the part of you that wants to run away. Wealthy people are familiar with the money world. Clean out the old. Get rid of the clutter in your life that keeps you connected to your past. Make way for a positive future. Talk to successful people and read biographies of those who have overcome obstacles to create success. Be inspired by others who have accomplished what seemed impossible. Connect to other people. You don't live in a vacuum. Aloneness is one of the greatest contributors to financial fear and discomfort. You may have to overcome a tendency towards isolation. Money comes from people and the more people you connect to, the more apt you are to create a financial flow. If you are in serious financial trouble, see a debt counselor or go to a Debtors Anonymous meeting. At these meetings, they deal with issues such as under-earning, compulsive spending and debting, and other causes for financial discomfort. See the resources at the end of this article for information about DA and meetings, online and off. Say Yes! Get used to saying yes to yourself and seeing things in a positive light. This may mean overcoming years of negative thinking. The screen saver I have set up on my computer is the word Yes! I see this many times a day. When you have doubts about where your life is going, assure yourself, "You can do it!" The fact that you are reading this means that you are looking for a new way. The steps above will get you started. Joan Sotkin is the creator of ProsperityPlace.com , author of "Build Your Money Muscles:9 Simple Exercises for Creating Wealth Prosperity" and "Prosperity Is an Inside Job" and publisher of Prosperity Tips, a free monthly e-zine. Visit ProsperityPlace.com . Copyright copy; 2003 by Joan Sotkin. Permission granted for use by DrLaura.com. More >>

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Posted under Simple Savings
05/07/2010
IconPayback Time The Dollar Stretcher by Gary Foreman gary@stretcher.com Dear Gary, I just finished reading the letter from "Tina", who was upset that she was being "harassed" by a collection agency. Could you address the other angle of this? I'm 32 and I guess I have a big chip on my shoulder about people who run up debts and are then outraged that they would have to pay it back. I scrimped and saved in order to pay off my home mortgage and live debt free currently. In the past, I've had acquaintances who made me feel cheap because I was driving a 10 year old car. I've been called cheap, tight and stingy when I made dryer sheets, opted to eat at home rather than out, and made Christmas gifts or purchased them on sale throughout the year. It was some of these same acquaintances that lived penny to paycheck, asked to borrow money and complained that they couldn't afford a gallon of milk for their children. I want to scream when I hear them complain that creditors should "get off their back". Maybe they shouldn't have gotten into debt in the first place! Everyone makes mistakes, but I hear too much of this. Please address this side of the coin as well. Nancy Nancy makes an interesting point. Living within your means isn't always popular. Sometimes people imply that you're less of a person for being frugal. And, that makes it especially hard to listen to their complaints later when the bills come due. There's more than just hurt feelings involved. Approximately 1.5 million bankruptcies occurred in the past twelve months. According to bankruptcy.org "the average American family loses about $400 annually to bankruptcy filings". And that doesn't include the other expenses we all face when people don't pay their billsStatistics from The American Banker's Association show that 2.4% of all outstanding loans and over 5% of all credit card accounts are delinquent. That means that everyone who borrows money will pay slightly higher rates to compensate for the increased risk to the lender. Nancy's point is valid. People should be expected to live up to their obligations. When we borrow money, we agree to pay it back within a certain time and generally with interest added. We don't have the right to break that promise just because it becomes inconvenient later. And whining about it isn't fair to the people around us. However, that doesn't mean that creditors are allowed to abuse or harass debtors. Federal law prevents that. So if a collection agency is truly abusing someone they can be stopped. But we would probably also all be happier if people considered the financial effects of decisions they make. Divorce is an example. Many people would argue with me, but studies are pointing to divorce being a major cause of poverty. Take, for instance, a study done at the University of Michigan. It showed that household income for a family with children went from $43,600 before divorce to $25,300 after the split. That's a lot of money to pull out of any family budget. Pretty hard to avoid financial trouble down the road. I'm not saying that someone should stay in an abusive relationship. But in many cases marriage counseling could be a very good financial investment. In any event, considering how your finances will be effected would certainly be smart. One thing that Nancy and all of us need to remember is that there are different reasons why people are in financial trouble. Many do get behind because of foolish spending. But that's not the case for everyone. People who provide non-profit credit counseling tell me that about half of all the debtors who come to them did create their own problems by simply spending more than they earned. But, they also say that the other half generally were doing fine until a medical emergency or other unexpected crisis threw them into debt. While we want people to be accountable for their actions, we also want to make sure that we don't harden our hearts to everyone who struggles with bills. There's a temptation to dislike people who complain about situations that they appear to have caused. But it's bad for us to be without compassion. And, expecting responsibility and acting compassionately aren't incompatible. In fact, suggesting ways that people can spend less or make more will probably cut down on the whining and might help them to solve their problems. Those who aren't interested in hearing possible solutions are probably chronic complainers that can safely be ignored. Should Nancy speak up? Only she can decide whether a relationship is strong enough to handle that. But it is tempting to tell someone who complains about bill collectors that 'cheap' methods could help solve their problem. After all, true compassion is helping someone out of a bad situation. Nancy could be holding the key to their freedom. Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website www.stretcher.com/save.htm You'll find hundreds of articles to help stretch your day and your dollar. Copyright 2002 Dollar Stretcher, Inc. All rights reserved. Permission granted for use on DrLaura.com More >>

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Posted under Simple Savings
05/07/2010
IconSummer Break for Mom The Dollar Stretcher by Gary Foreman gary@stretcher.com Dear Dollar Stretcher, I stayed home as a parent until my youngest started 1st grade. We happily survived on one income. Now I am an educational assistant in the same school system, same hours, same days off, as my two daughters. We have grown accustomed to my paycheck appearing every two weeks. This will end when school stops. So my question is: do you have any tips on how to handle the summer months? (more time at home, less money). Curious As to How the Summer Will Go Curious has a lot of company. Many mothers arrange their work schedules so that they can be home with their children when school is not in session. And for those who are able to take the entire summer off, getting through those months without accumulating credit card debt is always an issue. Let's see if we can't suggest some methods to help Curious survive the summer. The most obvious answer for Curious is to earn some extra income during the summer. Creating at-home work for just a few months is challenging, but not impossible. The first opportunities to consider would be those that use the skills she applies working at school. One possibility would be to take in other kids during the day. Curious could probably find some mothers who will continue to work during the summer and need a daycare option for just the summer months. Naturally she'd need to consider the appropriate safety and legal issues. Another strategy would be for Curious to adjust her income so that it's level throughout all twelve months of the year. She can total the amount that she'll earn during the school year and only allow herself to spend 1/12th each month. The extra during the working months could be set aside in a separate savings account. By the time summer arrives Curious would be able to pay herself out of the saving account. Just like she was getting a payroll check. Unfortunately, it's too late to start for this summer. But if she'll begin the program at the beginning of the next school year she'll be in better shape a year from now. She can consider ways to control expenses. The first step is to shift her expenses to the winter months wherever possible. Her goal should be to actually spend less when she's not working. She must avoid any payments that can't be covered by her husband's pay alone. One strategy is to prepay bills before the summer. Curious can either pay the bills in advance or simply set money aside for summer bills. She might find it very liberating to know that the car payments for July and August are already handled when she begins her summer break. She'll also want to save ahead for known summer expenses. If a vacation is planned the money should be accumulated during the school year. The same for any day camps or day trips that are planned. This late in the school year Curious will need to concentrate on things that she can do to reduce spending this summer. She has an opportunity to use the time that's not spent working to 'manage' her household expenses. If Curious considers saving money at home as if it were a job, she can actually save significant amounts. If she doesn't believe it she might want to visit the library and read "Miserly Moms" by Joni McCoy. A former purchasing agent, Joni found that she was actually ahead financially by applying her skills at home rather than at the workplace. Groceries are an excellent place to start. Convenience foods save time but are expensive. Cooking from 'scratch' can reduce a grocery bills big time. Curious could also take on some home repair projects (like painting) that might require a professional if left to a busier time of the year. It's also a good time to review auto, home and life insurance policies to make sure that you're getting the best rates. Curious and the kids need to recognize that more time doesn't necessarily have to mean more expenses. Free time should be just that: free. Every minute doesn't need to be filled with paid amusements. In fact, until recently people were expected to entertain themselves when work, school or chores weren't consuming their time. That means looking for creative ways to find free entertainment. Depending on their interests, they can use libraries, museums, athletics and other activities to have a great time. She'll need to search out ideas from the local paper and other sources. But she'll have the time to do that. Can Curious make this work? Sure! But her family will need to look at it as a twelve month challenge. Not just a summertime problem. Here's to a wonderful summer for Curious and her daughters! Gary Foreman is a former Certified Financial Planner and purchasing manager. He currently edits The Dollar Stretcher www.stretcher.com/save.htm website. copyright The Dollar Stretcher, Inc. 2002 - all rights reserved. Permission granted for use on DrLaura.com More >>

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Posted under Simple Savings
05/07/2010
IconReducing Your Mortgage The Dollar Stretcher by Gary Foreman gary@stretcher.com Dear Dollar Stretcher, I once heard that you can cut a mortgage in half by simply making one extra payment per year. Is this true? And does this work with any loans like...car, personal and student loans? Thanks. Tanya P. Like many of us, Tanya would like to get the mortgage paid off in something less than 30 years. And, she's willing to pay a little more than promised to accomplish that goal. So let's see whether one extra payment a year is enough to get the job done. Tanya does have the right idea. Especially in the early years of a mortgage. Her monthly checks repay very little of the principal at first. It will be years before she's made much of a dent in the amount owed on the mortgage. Let's take a standard 30 year, 8% mortgage. At the end of the first year, Tanya will still owe $991.65 for every $1,000 she borrowed. She will have written checks for $88.08 and only reduced principal by $8.35. So for the first year for every dollar that she paid, less than one thin dime went to repay the amount she owed. So Tanya's strategy is a good one. Put more of each payment to work reducing principal because there's less interest owed. But unfortunately she won't be able to cut her mortgage term in half with one extra payment per year. At least not at today's interest rates. In fact rates would have to be 17% for that to happen. But that doesn't mean that it's still not a valuable tool for Tanya to consider. One extra payment per year on an 8% mortgage would move her payoff on a 30 year mortgage up seven years. Not a shabby reduction. An alternative would be to add 1/12th of a payment to each monthly check. That would spread out the extra payment over the year. Doing that would pay off the mortgage a couple of months sooner than the extra annual payment. So one extra payment wouldn't cut the mortgage in half, but it would cut about 25% off of the term. What about other debts? The idea is the same. Paying additional principal means that more of each future payment is reducing even more debt rather than just paying the interest owed. One major difference. The longer the life of the loan the bigger the effect of any prepayments. Paying extra principal on a 30 year mortgage makes a big difference. The difference on a 3 or 4 year auto loan isn't so significant. For comparison, we're going to assume an 8% 48 month car loan. For every $1,000 borrowed the monthly payment would be $24.41. The payment is higher than for the mortgage because the $1,000 that was borrowed is being repaid over a much shorter period of time. For instance, in the first month that $24.41 payment actually reduces the amount owed by $17.75. But adding one extra payment per year will only pay off the loan 3 months early. So paying extra principal on an auto loan won't make a huge difference. But that doesn't mean that the strategy only works for mortgages. Credit card debts are another fine candidate for extra payments. Most credit cards are designed to keep you in debt forever. Many payments are as low as 1.5% of the amount owed. That means that you'll be paying only $15 per $1,000 owed. And if your interest rate is 15% (a typical rate) you'll be paying off that debt for 133 months or over 11 years. Even if you don't charge another cent or trigger any fees on the account. Doubling the $15 minimum payment to $30 would cause the loan to be repaid in just 43 months. A big difference. So Tanya's on the right track. Paying extra can make a difference. To get the biggest bang for her buck she should use extra money to pay off loans that run for many years like mortgages. Or ones that carry a high rate of interest like credit cards. Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website and newsletters. You'll find practical information to help you stretch your day and your dollar. More >>

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Posted under Simple Savings
05/07/2010
IconDangerous Information The Dollar Stretcher by Gary Foreman gary@stretcher.com Dear Dollar Stretcher, Someone told me you weren't supposed to put your social security number on your checks. Also you shouldn't have your number on your driver's license since that number is used for a lot of private things. Can you give me some input on this subject? Marsha Marsha has asked a question that we should all be considering. How free should I be in releasing my social security number? And, frankly, what you're about to read isn't going to make you comfortable. Originally social security numbers were not to be used for identification. It even said so on your social security card. But no law was ever passed to support that. Recently, as our society has grown more complex the trend has been to use your social security number in many more places. They've cropped up on driver's licenses, mailing labels, student ID's. Surprisingly, the Social Security Administration has no legal authority to keep anyone from asking for your number. Nor can they control what someone does with it once they get it. To further complicate matters, some people want to use social security numbers to catch bad guys. The 1996 Immigration Reform Act required states to get a valid social security number before issuing a driver's license. The goal was to catch illegal immigrants. Some states used that change to move toward using social security numbers as a license number. Others have proposed requiring the use of your social security number for other government services. The goal was to catch 'dead beat dads' and other criminals. An admirable goal, but questionable from a privacy point of view. Currently, there are two problems with the way social security numbers are being used. The first is that many organizations use your social security number as a password. Knowing the number gets you access to the account. Clearly that makes it easy for anyone who knows your number to pretend to be you. The second problem is that many places use your social security as an ID number. Banks, hospitals, brokers and others all find it convenient. Names and addresses can change. But, your social security number remains the same. So that number makes it easy to identify you. But it also means that your number isn't nearly as private as it once was. And that's created an entirely new crime called 'identity theft'. According to the U.S. Secret Service identity theft crimes cost about $1 billion last year. It's estimated that there are 500,000 new victims yearly. Identity thieves will open a new credit account using your name. All they need is your social security number and date of birth. To keep you unaware of the crime they'll have the bills sent to their address. You'll never know about the account. Naturally they won't pay the bills and you'll be left with the bad credit entries. Thieves can also use your social security number to change the address on an existing account. They'll request an additional card and begin to make charges but you won't see any statements. And it's not just credit cards. Many savings institutions will allow a caller to transact business in an account if they have the name and social security number. They can transfer money out of your bank account without ever setting foot in the bank. Pretty scary, huh? And it's not hard to steal your social security number. It's often listed on billing and investment statements. All it takes is the theft of one statement from your mailbox. Would you even notice that it was missing? What's interesting is that in most identity theft cases the police don't consider you to be the victim of a crime. That's because the card issuer is liable for the fraudulent bills. Unfortunately your reputation doesn't have a dollar value. So how can you protect yourself? The American Association of Retired Persons suggests that you do not print your social security number on your checks. They also advise that you not carry your social security card with you. But that's only the beginning. The real question is what happens when you want to do business with someone and they ask for your number. Private organizations can demand your number for almost anything. You can refuse to give it to them. But then they can choose not do business with you. For instance, when you move the utility company may ask for your number before they initiate service to your home. They can do a credit check without your number. And they will if you request it. But that will take longer. And you might not be willing to wait to get your electricity turned on. When someone asks for your social security number find out why they need it. Expect to provide it when you apply for credit. For anything else, you might want to consider refusing the request. You'll also want to know how they'll use your number once they have it. Will they access your credit file once and that's it? Remember, the information that you provide may not remain private. Even 'reputable' businesses have been known to sell blocks of social security numbers. There's no one right answer for all situations. Just a lot of grey area. But by considering the request you should have a reasonable chance to come to a good decision. Finally, check your credit report often. Anyone misusing your social security number will leave evidence in your credit file. They're just counting on you not to notice. Check your credit rating at least once a year. There are three main credit reporting agencies. By law they may charge you up to $8 for your report unless you have been denied credit due to their report within the last 60 days. Equifax: 800-685-1111 Experian (formerly TRW): 800-682-7654 Trans Union: 800-888-4213 Naturally you don't want to have to pay for the report. Consider it low cost insurance against the hassle of an identity theft. So, should Marsha provide her social security number? Only when she feels that it's really necessary. And she, like all of us, need to be alert for unusual activity. Gary Foreman has worked as a Certified Financial Planner and currently edits The Dollar Stretcher website www.stretcher.com/save.htm and newsletters. You'll find hundreds of free articles to stretch your day and your budget. Visit Today! More >>

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Posted under Simple Savings
05/07/2010
IconA Management Tool for Expenses The Dollar Stretcher by Gary Foreman gary@stretcher.com Dear Dollar Stretcher, I want to make a grocery budget but I am not sure what to include on that list. Do you include your household items such as light bulbs and laundry needs? Regular household needs such as bath tissue and paper towels? My husband and I would like to reduce our grocery bill but as it stands everything for the house comes from our grocery budget. Kathy Kathy asks a good question. According the federal government the average family spends about 14% of their after tax income on food and another 1% on household supplies. So keeping track of these expenses is important. She's on the right track. Her budget should be a management tool. It's purpose is to help you quickly identify problems and possible solutions. You 'read' a budget just like a management report. Begin at the bottom and work your way up. You'll start with the bottom line totals. Then check the subtotals. Finally, if necessary, you'll look at the detailed part of the budget. Start by finding out two things. Was your income near the expected level? And were your expenses close to the budgeted amount. If both totals were close to what you expect you can be pretty sure that things are under control and you don't need to spend a lot of time looking for problems. Next you want to look at the subtotals. That's how you find what category is the source of any unexpected mismatch. Most managers will start with the groups that include the biggest expenditures. For families that would be housing, autos and food. If your actual and budgeted subtotals match in a category you can pretty much skip the details that make up the subtotal. It's taken just a moment to verify that everything is fine. An efficient use of your time. If you find a difference between the actual and expected subtotals you'll want to look at the individual expenses that make up the total. Again you're looking for actual expenses that are much different than what you expected. In most cases by going from the totals, to the subtotals, to the individual line items it's easy to find any problems. That's because you've narrowed the search to a reasonable area. And once you've found those problems you can decide what changes are required to get things back into line again. Consider Kathy's food/household products situation. By combining the categories she has found it difficult to determine what's causing them to spend more than they want. So until they can get that area under control they'll want to split out household from grocery items. And even that might not be enough. They may even need to separate meats from vegetables and canned goods. Or any other division that will help her understand the problem. Once she's brought the offending expense back into line they can combine the two categories. It only saves a few minutes when she enters the data, but her time is valuable. Another thing to remember is that you don't always have to do things the same way. For instance, Kathy may combine the category without problems for a year and then suddenly begin to have troubles. She has two choices. She can go back to her receipts and split the category for the last month or two. Or, if it's not a crisis, she can beginning splitting into two categories this month. The same thing is true for other categories. For instance, if your entertainment category is growing you may need to separate video rentals and movie tickets from dining out. Whatever will help you easily identify where your money is going. The key to remember is that you only want to collect as much information as you'll need to find problems when they occur. The trick is to not waste time collecting info you won't use, but to still have enough data when you need to find a problem. That means that there is no one right answer to Kathy's question. It all depends on how much info you need at the time. _______________ Gary Foreman is a former purchasing manager who currently edits The Dollar Stretcher website www.stretcher.com/save.htm You'll find hundreds of articles to help you stretch your day and your dollar. Visit today! More >>

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Posted under Simple Savings
05/07/2010
IconBand Instruments The Dollar Stretcher by Gary Foreman www.stretcher.com gary@stretcher.com Hi Gary, I just read your article about the rent to own question. Your examples are easy ones. What about the difficult ones - namely school band instruments? I read somewhere that the rule of thumb is if they are going to play the instrument for more than 2 years it's cheaper to buy. If they play it for less than 2 years it's cheaper to rent. My husband got stuck with a saxophone and a drum kit. We sold them so we got a little money back. But not what he paid. Our daughter never stuck with one instrument longer than 2 years, but every year we were renting something for her. I returned each instrument when she switched to another. Our son, on the other hand, played the trumpet 2 years. So I purchased a trumpet. Then he played for 2 more years and quit! I'd appreciate your thoughts on this, even though it seems like a no-win situation. Thanks, Mary A lot of us share Mary's experience. We have a child who wants to try band or orchestra. And, like good parents, we encourage them. But, we all have the same problem. No one can see into the future. And that means that there's a good chance that you'll end up with an old clarinet in your closet! Mary's estimate of two years on band instruments is about right. Most instruments will cost between 15 and 30 times as much to buy as they will to rent monthly. So the simplest way of looking at it is to divide the purchase price by the monthly rental to figure out how many months Junior will need to stay with the program. Will he be interested that long? All you can do is to take your best guess based on other similar circumstances. Some children are naturally more persistent than others. One thing to consider is why he wants to try this instrument. If his motivation disappears Junior will probably take the earliest opportunity to quit. For instance if his best friend quits don't be surprised when he follows. A better solution might be to compare renting to buying a used instrument or borrowing. You're not the first parent to face this question. And some of those parents would be glad to recapture the closet space currently occupied by a snare drum. If you have enough time you might want to run a 'wanted to buy' ad. The school paper would be an excellent place to find a seller. Look for other ways to avoid buying new. It would be fairly easy for the band teacher or a parent in the class to make a list of parents who will want to sell their instrument when the class is over. That list could be circulated at the beginning of the next school year to parents of band students. I'd suggest that any parent give serious consideration to renting. The fact is that not too many students will stay with an instrument for more than one year. Many kids start in the early grades. But very few students are involved with band or orchestra as they approach graduation. And even a student who plays for more than two years can outgrow an instrument. Violins are one example. Student violins are available in special smaller sizes. Your budding virtuoso might get too big for the smaller instrument you purchased. So unless you're pretty sure that your student will be able to use the exact same instrument for more than a couple of years it's probably best to either buy used or rent. One final note. The average house in the U.S. has grown from 1100 square feet in the 1950's to 2000 square feet in the 90's. Part of the reason for bigger homes is storage for all the things that we're accumulating. So follow Mary's example if you buy. When Junior finally lays his horn down for good sell it. Not only will you make a little more space in your closet, but you'll also help another family find a good deal on an instrument. Gary Foreman is a former former purchasing manager who currently edits The Dollar Stretcher website http://www.stretcher.com/save.htm You'll find hundreds of articles to help stretch your day and your dollar. Permission granted for use on DrLaura.com More >>

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Posted under Simple Savings
05/07/2010
IconReducing Investment Expenses The Dollar Stretcher by Gary Foreman gary@stretcher.com Dear Dollar Stretcher, I'm interested in cheap ways to invest. If I want to begin investing extra money, what are some inexpensive ways to do it? Going through a discount broker can really cost money. Of course, with mutual funds, you can invest directly with the company, but are there other ways to cheaply invest other kinds of investments (e.g., stocks, Treasury bills)? Thanks. Allison Congratulations to Allison for beginning an investment program. And, she's right to be concerned with the costs of investing. Commissions, fees and transaction costs can significantly reduce the growth of your money. Generally you'll find cost in three areas. A fee or commission when you buy. Management fees during the time that your money is invested. And, exit fees or commissions when you sell. Usually the safest investments are also the ones with the lowest expenses. Savings accounts, CDs and savings bonds are all good examples. You won't pay to open, manage or close these accounts. Yes, the issuer will make a little money on you. But you'll have a pretty good idea of your rate of return before you open the account. Allison should begin her savings program in a money market account. Technically there are two types. You really don't need to worry about the differences. The main thing is that you can be sure that $1 invested will be worth $1 plus interest when you choose to take it out. And, that you can take any or all of your money out whenever you want to. Treasury securities (bills, notes and bonds) are usually for the person who can put away tens of thousands at a time. If you want the safety of U.S. Government backed debt but don't have that much money, take a look at U.S. Savings Bonds or some of the mutual funds that buy treasury securities. Most have very low expenses and will allow you to add smaller dollar amounts to your account. The riskier and more complicated type of investments will have higher expenses. Even with all the technology available today buying a stock is still a complicated transaction. And that costs money. As a rule of thumb, unless Allison can afford to commit $2,500 or more to a specific stock, she shouldn't consider buying shares in individual companies. The transaction costs are too high. She'd be better off using mutual funds to own stocks. Many mutual funds do not charge you to invest with them. They're called "no-load" funds. "Load" is a term that describes a sales charge that's "loaded" onto the fund. No-load funds are sold directly by the fund company to the investor. Load funds are sold by brokers. Part of the load is paid to the broker as a commission. Studies have shown that no-load funds perform as well as load funds. But that doesn't automatically mean that you should ignore load funds. Since a broker sells the load funds, they will do the necessary research to find a good fund that meets your objectives. The load is the price you pay for them to do that work. You can find a good no-load fund for yourself. But you need to be willing and able to sort through the thousands of funds available to find the best ones for your situation. Don't kid yourself. Even with the help of magazines and websites that rate funds, you will spend some time and effort in finding the best one. Remember that cost is not the only consideration. You would gladly pay a few dollars if it meant that you could earn many dollars. Mutual fund management fees should be clearly spelled out in the prospectus. For actively managed stock funds you can expect to pay up to 1.75% per year. Sometimes you get what you pay for. Cheap management fees are no bargain if your investment doesn't grow. Conversely, higher fees are no guarantee of superior performance either. The bottom line is either you or a broker will need to compare records and study the investments. Usually, beginning investors will do best with two types of investments. The very safe, like money funds and savings bonds. And mutual funds for long term growth. One final thought. If Allison is carrying a balance on her credit cards, paying them off first could be her cheapest and best investment. Paying more than your minimum payment doesn't trigger any fees. She's guaranteed to earn whatever interest rate that the credit card company is charging her. That could be much better deal than she'd earn on any safe investment. Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website http://www.stretcher.com/save.htm You'll find hundreds of articles to help stretch your day and your dollar. Permission granted for use on DrLaura.com More >>

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Posted under Simple Savings
05/07/2010
IconEnron Lessons for the Little Guy The Dollar Stretcher by Gary Foreman gary@stretcher.com Much has already been written about the fall of Enron. Most has been on the political and business ramifications and deciding who to blame. I've been surprised to see that there hasn't been much that would help the average Joe protect himself from the next Enron. So let's see what lessons can be learned from the current mess. There will always be bad guys in this world. Insiders will know more than you do. Some will use that knowledge to their advantage. And, some won't care if you get hurt while they make money. That's no surprise. Never trust the insiders to be on your side. Always take steps to protect yourself. You may be fortunate enough to avoid the bad guys. But you still need to be cautious. If you can't explain what a company does in two sentences you shouldn't invest in it. Smoke and mirrors are only fun at the carnival. Razzle, dazzle companies often blow up. Complicated dealings are a perfect place to hide mischief. If you don't understand what a company is doing you won't be able to tell whether they're doing it well. You shouldn't invest in anything where you can't judge their performance. Even the biggest of companies aren't immune from failure. Sure, they're safer. But not 100% safe. In fact, it's easier for a big company to hide troubles. At least until they become really serious. Putting all your eggs in one basket is dangerous. It is not a good idea to have all of your assets invested in one company no matter how good that company is. Even if it's your own business it is wise to try to have your money invested in a number of different things. Diversification is the most important tool for small savers and investors. It minimizes your damage when catastrophe strikes a company. And, it also provides for a steadier, more dependable growth of your money. Mutual funds can protect you from being overly exposed to one bad apple. Even if a fund does own the next Enron, it's only a small portion of the fund. Diversify your 401k plan. You shouldn't put all of your retirement money in one investment. You should have a variety of stocks, bonds and guaranteed investments. And even within each category you should have a variety of stocks and a variety of bonds. You don't want to invest too much in the company you work for. If something bad happens to the company you could lose your job and your savings. Even if the future looks bright for your employer it's a bad idea. Some employers will automatically buy company shares with their contribution to your 401k plan. You can still protect yourself from disaster. Use your contribution to buy something besides company stock. And sell the company shares in your account as soon as you can to keep your exposure to a low level. These two steps will provide needed diversification. If you don't have control over an investment you've increased it's risk. Some 401k plans place limits on how soon you can sell the company's contribution. That means that you can't really count on the value of company contributed shares until you have the right to sell them. When plan administrators are changed most 401k plans will freeze your investments for a short time. A lot can change in that time. If you face a freeze, you should consider moving the vast majority of your money into the safest place you can find. Often that's a CD or money fund within the 401k. You can always rebuy the stock or mutual once you regain control of the account. Counting on others to protect your money doesn't always work. Even the most honest accounting and regulatory groups can make mistakes. And, some of them will even be dishonest (gasp!). Putting all of your money in one company and assuming that the auditors will catch any problems is foolish. A big failure like this doesn't mean that you should avoid Wall Street and all stocks. Doing that would eliminate the best way to grow your money. Stocks have the best long term growth rate of any investment category. We'll probably see some changes in the law. But you don't need to wait for Congress to protect your money. You can use common sense and diversification to protect you today. Why not take a look at your statements and make sure that you won't be a victim of the next big business flame out? Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website www.stretcher.com/save.htm You'll find hundreds of free articles to stretch your day and your budget. If you have a question or comment send it to gary@stretcher.com Permission granted for use on DrLaura.com More >>

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Posted under Simple Savings
05/07/2010
IconMaximize Your Tax Refund The Dollar Stretcher by Gary Foreman More >>

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