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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 >>

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 >>

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 >>

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 >>

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 >>

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 >>

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 >>

IconFive Money Myths That Can Keep You Apart by Candace Bahr, CEA, CDFA and Ginita Wall, CPA, CFP www.WIFE.org www.MoneyClubs.com Managing money with your significant other is difficult enough. Don't burden your relationship with half-truths that can make it even harder. Make sure these five money myths aren't keeping you apart. The partner who earns more, knows more. Your earnings are only a measure of how much you earn right now, period. They don't represent your negotiation skills, job skills, investing skills-or just plain common sense. The partner with more intuitive skills can more easily sense a bad investment than the one with a high income but a faulty BS detector. Respect your partner's contribution of knowledge and insight to your team-regardless of his or her financial contribution at the moment. Pennies make millions. A penny-pinching partner may starve the essence and spirit of his partner, instead of encouraging her to achieve her full potential-economic and otherwise. Monitoring day-to-day spending is fine, but don't keep your partner from pursuing dreams because of temporary financial risks. Concentrate on your partner's long-term potential. If you restrict her from achieving her best, she will always resent you for it-and the costs will far exceed pennies. We have to agree on everything. Some couples think that any disagreement is a deep and permanent conflict that will destroy the relationship. If he likes to spend and you like to save, or vice versa-this does not mean the end of the relationship. Agree to disagree on small matters, and compromise on the large ones. Remember, if two people agree on everything, one of them is unnecessary. We can't enjoy the present because we have to save for the future. An intelligent savings plan includes some enjoyment in the present. You don't have to go on an expensive vacation or spend lots of money on weekend entertainment, if that is outside of your budget. You do, however, have to reserve some time (and some funds) for enjoying yourselves right now. If you don't nurture your relationship with some pleasures now, you might not have a future together. Money is more important than our relationship. Every relationship has its share of money regrets. Each partner says to himself: "If only she (or he) had let me invest#133;or kept me from investing#133; or spent money on#133; or not spent money on#133;" These regrets and unfulfilled wishes can be very expensive in terms of energy and goodwill in your relationship. This ruminating is not productive, so let it go to make more space in your relationship for future inflows of money-and love. This article excerpted from the new book It#146;s More Than Money#151;It#146;s Your Life! The New Money Club for Women . Available at your local bookseller or through the non-profit Women#146;s Institute for Financial Education ( www.WIFE.org ). Permission granted for use on DrLaura.com. More >>

IconInherited Debts? The Dollar Stretcher by Gary Foreman Dear Dollar Stretcher, I've heard that when parents are in debt and they die the debts are left to the children to pay off. Is this true? My parents had gotten a divorce a few years ago. My mom is doing well because she is a saving queen. My dad had remarried two years ago. His wife does not work but loves to spend money. So now they have a $20,000 debt. If my father dies, his wife is responsible for the debt, right? What happens after she dies and there is still that debt? Also, what happens if she dies first, and then my father--who gets the debt? Judy Judy asks a question that comes up often. Can someone die and 'leave' their debts to you? The answer is no. Parents can't leave their debts to you. In fact, they can't even leave their debts to their spouse. Typically a will controls financial affairs after a person's death. A will distributes assets, not debts. But, before any money can be distributed to heirs, all the debts must be paid. So enough assets are sold to pay for any debts that remain. Only after the debts are paid will the remaining assets be distributed among the beneficiaries of the will. The key point to remember is that you are only responsible for debts that you contractually created. There are certain circumstances that would put Judy at risk for her dad's debt. But she would have had to do something to cause that responsibility. Suppose that Judy's dad asked her to co-sign a loan. Signing would make her responsible for the debt. Not only if her Dad died, but also if he failed to make a payment. But she shouldn't be surprised. When you 'co-sign' a loan, you do just that. You put your signature on the loan application. A similar situation occurs with a joint credit card. A joint account allows anyone named on the account to use it to create a debt. But it also means that everyone listed on the account is responsible for the entire debt that's created. Suppose Judy had a joint card with her dad. And he was the only one using the card. Any debts he left at death would be Judy's. But once again, it should be no surprise to Judy. She signed the joint application for the account. And it's her responsibility to be aware of whether it's being paid off or not. It wouldn't be unusual for Judy's dad and step-mother to have a joint account. In that case the survivor would be responsible for any balances on the account. Joint credit card accounts often create problems in a divorce. Often a couple has a joint account before the divorce. The credit card company isn't going to split the bill just because a couple throws in the towel. As far as they're concerned, both the ex-husband and wife are responsible for the entire amount of the bill until it's paid. And while a court can instruct one party to pay, sometimes it still doesn't happen. Another way that people end up paying someone else's debt is when you let someone use your credit card. Again, it should be no surprise when the bill comes in. So what happens to the debts of someone who dies? The credit card company will first try to collect from the estate. As mentioned earlier, assets will be sold to pay the bills. Then, if the account was a joint account, any survivors will be left holding the bag. If the debt belonged solely to the deceased, then the credit card company will end up eating the debt if there aren't enough assets to cover it. But Judy isn't completely off the hook. She might still want to advise her dad to control his spending. As her father and step-mother get older they could have trouble keeping up with the minimum payments. And, once they fall behind things will get tough. Credit card companies are quick to bump up interest rates when you miss a payment. And that would be trouble. Judy's father will probably be living on a fixed income during retirement. So the payment that was a struggle at 12% interest becomes impossible when the interest rate goes to 20%. And unless they have some assets that can be sold to reduce the debt, the minimum payments will dominate their finances. And that's where Judy comes in. I don't know her relationship to her father, but it would be awfully hard to watch a parent struggle to put food on the table. Even if they caused the problem by foolish past spending. It actually would be interesting if parents could 'leave' their debts to someone after they die. I suspect that many children would treat their parents much better if that were the case. Instead of parents threatening to cut a child out of their will, parents could run up large debts and threaten to put a child into their will! Never mind! It's a good thing that the law doesn't read that way. Somehow I don't think that it would be good for family relations. Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website: www.stretcher.com/save.htm More >>

IconTemporary Downsizing? The Dollar Stretcher by Gary Foreman gary@stretcher.com Hi Gary, We're wondering if we should sell our house. My husband recently returned to school to get his degree, which will take two years of full time school. He's working part time while he's in school and I work full time as a social worker. Our mortgage payment is $1,030 a month--no problem when we were both working full time. Now that his income has been drastically reduced, the mortgage feels very steep. What about selling the house, using the equity to pay off our $20,000 second mortgage, and moving into a place that costs less per month? Rental costs in Denver are high, at $750+ for a two bedroom apartment. Is it smart to use your big asset to pay off debt and "slim down" for a few years, or is it stupid to give up a chance to continue earning equity? Thanks, Erin K. Erin has actually asked a two part question. Can she save money by moving to a smaller place for a few years. And, if she sells, will she regret not building equity during that time. The first question is easier than the second so let's start there. The difference between her mortgage ($1,030) and rent (we'll assume $750) is only $280. So that's about what she'd save each month. If her monthly payment doesn't escrow for insurance and property taxes she'll be able to add that to her monthly savings. A moving cost calculator at realtor.com estimates that it would cost $1,395 to move a two bedroom home. So the first five months worth of savings would go to the moving company. Erin shouldn't forget that there are a lot of small costs to moving that get overlooked. Things like shelf paper for the kitchen cabinets and picture hangers aren't terribly expensive, but they do add up. And, it's not just the money involved. She'll spend hours notifying everyone of the new address. It doesn't take much for a credit card bill to get lost in the moving shuffle. A tardy payment can cost you a late fee plus a black mark on your credit history. There are other costs to selling and buying a home. Erin could end up paying a commission to the real estate agent. Rates vary, but it's not uncommon for them to be 6% of the selling price. On a $150,000 home that's $9,000. That works out to 32 months of the rental savings. So it doesn't look like Erin is going to save much by selling and moving. But what about her equity? There are two ways to building home equity. The first - paying down principal on your mortgage - happens every time you make a mortgage payment. Erin can look at her mortgage amortization table and add up how much equity she'd build during the two year period. The second aspect to home equity is housing appreciation. She can't predict housing prices accurately but it is possible make a guess as to what will happen. Not owning a home for two years could be very expensive. To illustrate, if a $150,000 home appreciated 10% over two years, Erin's home would be worth an additional $15,000. That's about $625 in lost equity per month. So, if they don't sell, what should Erin do? First, recognize that the amount of debt they carry limits their options. It's admirable that her husband went back to school. But he might have to work full-time and go to school part-time. And that could be a good strategy. Many employers will pay for college classes that are related to an employee's work. Another option would be to try to reduce their expenses in other areas. Chopping out $280 a month won't be easy. Start by eliminating any extravagant spending. Then Erin should study their spending in major areas like food and autos for potential savings. A final option would be move into an apartment, but not sell her home. Presumably rental income on their home would be sufficient to pay the mortgage. Erin would still face the moving expenses, but wouldn't have to pay the costs of selling her home. And she'd still be building equity. Before taking this step, however, Erin needs to check out how it would affect her mortgage, insurance and tax situations.It might be tough for Erin and her husband for awhile. But the good news is that his earning potential will increase dramatically once he's completed his degree. According to the 2001 U.S. Statistical Abstract, mean income for a person with a college degree is $25,000 higher than for someone with a high school diploma. Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website and ezine, to subscribe email subscribe@stretcher.com Permission granted for use on DrLaura.com More >>

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