From the category archives:
In case you didn’t already know this due to all of the foreign cars on the roads, U.S. car buyers “are growing less satisfied with their purchases from domestic automakers.”
Lexus, BMW, Toyota and Honda lead the pack in a customer satisfaction survey — no American makers in sight.
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With the economy being what it currently is, many people are thinking about (or already are) tapping into savings, in some form or another. Whether it’s your regular savings account or your 401(k) plan, money is money when you’re strapped. It can be extremely tempting to dip into your 401(k), but here’s why you should resist if at all possible.
Times are tough now, but imagine how tough they’ll be if you get to retirement age and you have no savings. Basically, that’s what your 401(k) plan is — retirement money. In addition to what you put into your 401(k) account, many companies will match at least a portion of your money, so it’s almost like getting “free money” placed into your savings. You choose the percentage up to a certain amount and where you want to invest your money.
If you’re younger than 59 1/2, there are severe penalties for withdrawing money from this account if you’re still with the same employer, mainly a high tax percentage and having to pay state and federal taxes on the amount you withdraw.
If you want to get the most out of your 401(k) plan, you should:
If you absolutely have to get some money somehow and your 401(k) plan is the only way you know how, look into borrowing from the plan instead of withdrawing. In some cases, borrowing isn’t as penalty-laden as withdrawing, but you’ll have a time limit to repay the loan before it shows that you’ve defaulted on it.
Bottom line: Make your 401(k) work for you by always adding, not deducting.
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Patrick Ewing of the New York Knicks once said “We make a lot of money, but we spend a lot of money too.” Very nicely put, Pat. I’m shocked you didn’t become a financial advisor instead of an NBA star. But Ewing isn’t the only celebrity who has difficulties understanding finances. Here is a list of 5 celebrities you would never want in charge of your spending decisions.
1. Mike Tyson- Between going to prison, biting off Evander Holyfield’s ear, and threatening to eat Lennox Lewis’ children, Mike Tyson was a busy man. Yet, somehow he still found the time to burn through a reported $300 million he earned during his boxing career. Sound impossible? Well it’s true. Tyson’s lavish lifestyle cost him $400,000 a month. His divorce trial cost him $9 million in legal fees by itself. By the time all was said and done, Iron Mike was looking in the face of a $27 million debt. At last check, Tyson was doing a tour around the country sparring with no name hacks for a few bucks a night. How long will it be until we see Tyson on Celebrity Circus trying to dig himself out of this hole
2. M.C. Hammer- If only Hammer had set some money aside and told himself “Can’t touch this” he wouldn’t be here on our list of celebrities who lost it all. Rolling with his 40 person entourage took its toll on Hammer’s wallet. With a $500,000 a month payroll and a lavish lifestyle, it didn’t take long for the rap star to burn through well over $30 million. Where’s a financial adviser when you need him?
3. Wacko Jacko- One expert described Michael Jackson as someone with “a billionaire spending habit for only a millionaire’s spending budget”. In other words, Jacko did what most Americans do daily- he spent more money than he had. He just did it on a much grander scale than any of us ever could imagine. I guess that one plastic surgery he had really cost him quite a bit (is the sarcasm coming across?)
4. Ed McMahon- Who said blowing money was a young man’s game? Don’t tell Ed McMahon that. Johnny Carson’s longtime sidekick recently defaulted on his $4.8 million home loan. At last check, he was past due on nearly $700,000. For someone who’s made millions of dollars during his career, you would think this debt could be paid off in no time. But this is what happens when you spend money like a drunken sailor. McMahon didn’t keep track of how much money was going out, and next thing he knew, he was broke.
5. Evander Holyfield- Holyfield is the 2nd boxer to make this list. Maybe when Mike Tyson bit his ear off, Holyfield lost all his knowledge about managing his finances. According to the Associated Press, the boxer, who made over $200 million during his illustrious career, can no longer afford to pay child support for one of his 10 children. As a result, his ridiculously huge house is going to auction. Take one look at this thing, and you’ll start to understand Holyfield’s spending habits. The 54,000 square foot home had 107 rooms and 17 bathrooms. This thing is bigger than most Holiday Inn’s. Maybe, if Holyfield is lucky, he can talk the new owner into renting out one of those 107 rooms to him.
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Many homeowners think about refinancing at one time or another. They want to pay off loans or they need money to make home improvements. Whatever your reason for considering refinancing, there are some things you need to know before you sign on the dotted line.
1. Why are you refinancing? This is an important question you need to have an answer to. If it’s to pay off high-interest loans, that’s a valid concern, but if it’s simply to take an expensive vacation or buy a luxury item that’s not a necessity, you may be putting yourself further into debt with nothing to show for it. There are good reasons to refi and frivolous ones and you should only refinance when the pros outweigh the cons.
2. Are there penalties? There can be a lot of rules and information tied into your current mortgage that seems translatable only to someone versed in real estate law, but it’s in your best interest to know exactly what the fine print on those documents mean. You may have to pay stiff penalties for paying off your current loan early, penalties that are so high that refinancing isn’t cost-effective.
3. Is your interest rate fixed or variable? This is one of the more important points and is tied into how long you plan to live in your home. Many homeowners who end up in mortgage crises signed on with adjustable rate mortgages whose introductory rates were attractively low; they may or may not have had the intention of selling within a few years. Before they’re able to make any moves, the interest rate goes up, they have trouble making payments and the home goes into foreclosure. Fixed rates are generally more favorable, depending on the next point…
4. How long you’re going to stay in your home – If you’re in the home of your dreams and don’t plan to move anytime soon or ever, a fixed rate mortgage is your best bet. Adjustable rates only really benefit the homeowner when they plan to be out of that home before the rates have a chance to rise significantly.
5. How many points will you pay? This is an area you need to really research to see if refinancing is worth it. Points are percentage points of the value of your loan. You may think you’re getting a great deal with a zero points mortgage, but is the interest rate higher to make up for no up-front cost?
6. Who will do your refinancing – You may have received one of those tempting offers in the mail and are thinking of trying out Bank B instead of your current mortgage lender. Don’t be so hasty because the grass isn’t always greener outside of your bank. Because you’re already familiar with your financial institution, you have a reputation with them and they know you as well. It may be simpler to stick with the business who already has all of your documentation on hand.
7. Will you come out ahead? – The only way you’ll know this is to sit down and fiddle with the numbers. There’s a minimum amount of time you’ll need to stay in your home to break even. Use a refinancing calculator to help you calculate how much you’ll save by refinancing and how long it’ll take you to recoup your costs.
8. Is the interest rate percentage difference worth it? If you can get a minimum two percentage points difference in your rate, refinancing may be worth it. Again, you won’t know by how much until you do those calculations.
9. What will you do with the additional savings? If you’ve already done the calculations to figure out exactly how much you’ll save, good for you. But where are these savings going to go? If you plan to pay off loans, good. If you plan to buy that backyard pool that will add value to your home, good. If you don’t know what you’ll do with the additional savings, it’s time to sit down and evaluate…
10. Are you willing to do the homework? No one said refinancing was going to be easy. Clearly, there are quite a few informed steps you need to take before you even get to refi. Instead of taking the first offer that comes your way from a bank that’s unfamiliar to you, research them as well as your current bank and several others before making a decision. Before you sign anything, read the fine print; if there’s anything you don’t understand, don’t be afraid to ask questions! That’s what the professionals are there for – to answer them. If someone isn’t willing to explain things to you or want you to make a decision right now, run, don’t walk, out the door.
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If you’re already a dedicated discount store shopper, this won’t really surprise you. I love a good bargain, so I always check for sales and comparison shop and do all of those other things that previously, a lot of people saw as a waste of time, but with the economy being what it is, are now seen as essential for surviving.
It’s back-to-school shopping season and what a difference a year has made. Look at this:
This is a major shopping season for retailers, second only to Christmas in terms of spending. When you consider that consumer spending accounts for about 70% of economic activity, it’s easy to see how the way we spend (or don’t spend) money affects the economy.
Still, people are trying to save where they can and spending will probably be down about 2% this year for back-to-school shoppers. To help you save even more on all of the various supplies your kids will need, try these retailers for the best bargains:
1. Walmart - Their advertising may not be as slick, but what they save in ad dollars, they pass on to consumers. Now is a great time to shop because school supplies are heavily discounted. Plus, because many of the stores are open around the clock, you can shop at whatever hour is most convenient for you.
2. Target - Cute ads and better customer service add up to higher prices. Still, now’s a good time to shop because Target is trying to compete with other retailers in the back-to-school market. As with Walmart, you’ll find items like glue sticks, rulers, pencils, crayons, markers, etc. cheap.
3. Office Max - The prices here tend to be higher, but with the bag insert in many Sunday newspapers, you can save 15% off whatever you can fit in the bag. Plus, they’re running a penny promotion now, so you can pick up some items and get a second item for $.01.
Take your child’s school supply list with you and mark off items as you get them. There is really no point in trying to shop without that list — you’ll probably overspend or pick up the wrong items. Walmart and Target stores tend to have a school shopping area set up, so make a beeline for that special spot and stick to your list. If you can, buy a little more than what you need because that same pack of pencils that costs $.50 today will be $2.00 in two months time.
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Just a quick note to let you that we had the good fortune to be featured in a few blog articles this week. Check them out and read some of the other great posts that were selected:
Have a great weekend!
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Here’s a fun drinking game. Turn on any cable news program, and do a shot of your favorite liquor every time you hear the word “recession.” After half an hour, you should be nice and hammered like one of those shirtless, mullet wearing losers on Cops. No doubt about it, the majority of people in this country are feeling the strain of these rough economic times, and they’re all too happy to complain about it. But I’m not one of those people. In fact, I believe there are 3 good reasons this country needs a recession.
1. Wake Up Call- News flash- the people in Washington, D.C. could care less about whether or not you can afford to fill up your gas tank. I’m not condemning one particular party- neither of them care. Relying on the government to solve your financial problems is foolish and naïve. You think President Bush is going to write you a nice little stimulus check once a month? Get real. You think Obama is going to waltz into office and suddenly you’ll have a nice statement on your bank account? You can hope and believe in the power of change all you want, but that’s not going to happen. These bad economic times are just the wake up call the American public needed. You alone are responsible for your financial situation. The sooner you realize this, the better.
2. Stop Excessive Spending- Let me explain. We are a nation full of people who spend like drunken sailors. It starts at the top with our government, and these spending habits trickle all the way down to individuals like you and me. The vast majority of Americans break the first rule of personal finance- you can’t spend more money than you make. What a novel idea!
This is precisely why I believe these difficult economic times can be a good thing for Americans. High gas prices and the increased cost of food have forced many people to rethink their spending habits. Whether they like it or not, they have been made to reel in the spending.
The truth is that many of us are now, out of necessity, spending the way we should have been all along. Instead of splurging on that 60 inch flat screen we don’t need, we have to get the more practical 36 inch model. And we’re better off for it.
3. Learn to Save- In general, Americans are terrible at saving money. The average family in the United States saves less than 1% of their annual earnings. Over in the UK, they save about 10% of their income. If nothing else, I hope this downtime will teach Americans how to save money. Before you go out and charge something you can’t afford, put aside about 10% of your paycheck. In fact, just pretend you make 10% less than what that number on your paycheck says. If you do this for long enough, periods like this won’t have any effect on you. Your stress will be reduced, and you will be in the prefect position to retire with a nice nest egg.
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All right, you’re here because you want to get rid of your credit card debt once and for all. The stress of high debt and possibly late payments has finally gotten to you and you want out. Of course, the amount of time it takes for you to get rid of your debt depends on how big your debt is as well as how much income you have coming in, but everyone is capable of paying off their credit cards if they’re willing to do the work.
There’s a right way and there’s a righter way. Doing it the righter way is smarter. So how do you do it?
Steps to Get Rid of Credit Card Debt
In the meantime, it’s in your best interest to call your credit card companies and ask for lower interest rates. I know this sometimes seems like a hassle, but all they can do is say “no.” If you’ve been making your payments on time, however, there’s a good chance they’ll say “yes,” especially if you mention that you’re thinking of switching over to another company’s card. Isn’t spending a few minutes on the phone (okay, half an hour…okay, an hour…call at off-peak times!) worth the amount of savings you can accrue? This is interest you don’t have to pay, which is almost like tossing dollar bills into a fireplace. Wouldn’t you rather make a call and endure just a little elevator music instead of tossing your money away?
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Credit cards are so easy to get and abuse. After all, how many credit card offers do you have junking up your mailbox on any given day? They’re so tempting, promising 0% interest on balance transfers until next year or a low introductory APR. They’re attractive, they’re seductive and they’re dangerous if you let them take over your life.
What, you say. Take over my life? Don’t be silly.
But use them the wrong way and you can get behind on your bills, which is compounded by a sudden increase in interest rates (because you did read the fine print that says the company is within its rights to spike your rates if you’re a day late with payment, right?), leading into a spiraling vicious cycle that includes calls from creditors day and night, at home and at your job, as well as the inability to get more credit. See how it’s taken over?
One of the best ways to avoid all of this is to use the credit cards to your advantage, which so many people don’t know how to do. Credit cards don’t have to be all bad, but not knowing how to use them correctly can lead to all kinds of catastrophes, including a credit rating so low that you won’t be able to get credit for anything.
Keep it at Zero
How do make credit cards work for you? By using them for small purchases that you can pay off completely when the bill comes. I know this isn’t always possible; if you’ve already racked up huge credit card debt, this is going to seem impossible. However, if you’re just starting out and you want to avoid trouble down the line, remember to keep your credit card balance at zero.
But this won’t build up my credit rating, you say. How will I build up credit to buy things, like a car and a house?
You can, but do it wisely. Charge something small and pay the balance off when it comes. Completely. If you think you need something next month, charge it and again, pay your entire balance. What this does is establish your credit rating: you pay on time and you pay in full, which looks good on your credit report, leading to a higher score. Sure, you can maintain a balance and continue to make payments on time, which is favorable, but your main financial purpose should be to avoid credit card debt as much as possible. Carrying balances over seems harmless enough if the balance is low, but what happens when an emergency occurs and your balance is suddenly hundreds of dollars higher?
Avoid High Interest Offers
Store credit cards are notorious for having higher interest rates than standard cards, no matter how good your credit is. Therefore, before you take on one of these too-good-to-be-true store offers, read the fine print and read it well. Better yet, just avoid them altogether. If you absolutely have to have something from a department store, charge it on your bank-issued credit card. And then, pay off the balance when the bill comes.
It’s much harder to pay off your balance in full when high interest rates jack up your payments. If your credit history is already spotty and you have a high-interest card, it’s going to seem difficult to get out of this trap. However, the best thing you can do is make more than your minimum payments on time each month while, at the same time, not charging anything. After establishing an on-time pattern, call your credit card company and ask if they’ll lower your interest rate. If you have to resort to telling them you’re thinking of switching to another company’s card due to your current interest rates being so high that you’re having trouble making payments, then do it. You don’t have to play nice with credit card companies. Do you think they’re sitting in their offices worrying about your interest rates? Then don’t worry about their feelings. They’re big companies; they can handle it.
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With the Recent failure of IndyMac, many consumers are getting skittish. I’m seeing many people ask in the FatWallet Finance Forum - How do I know if my bank or credit union is insured?
The FDIC Has a guide called “Are My Investments Insured?” The Basic Gist of it is that the insurance covers up to $100,000 per depositor, per bank. It’s not per each account you may have at your bank, but all the money under your name at that bank.
Credit Unions are covered under the NCUA, which has an excellent guide on Share Insurance, which the Credit Union version of deposit insurance.
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