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:

• Start as early as possible. The sooner you start, the more money you can accumulate and you won’t have to  play “catch up” later to secure that nest egg
• Contribute the maximum amount. Because this money is taken directly from your paycheck before you get it, get into the mindset that it’s not even there. Even giving the highest percentage your company allows won’t be missed if you accept that the money isn’t there for you to spend.   
• Invest wisely. You’ll likely be able to choose where to invest your funds. Instead of wearing a blindfold and playing “eenie meenie miney mo” before picking whatever your finger lands on, get some information on investing so that you make smart choices. The better you invest, the more you can earn.

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.

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 2^nd 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.

No matter how diligent you are about recycling, there are people out there who aren’t as diligent. When you consider the number of plastic water bottles that are thrown away and carried to landfills day after day (to survive like cockroaches survived the Ice Age, never to die), you might want to get your water out of something other than the long-living plastic bottle.

Reportedly, American landfills receive about 38 billion water bottles each year! Not only that, but the production of one billion bottles requires over 24 million gallons of oil (no wonder we’re in an energy crisis). I know sometimes people think “what can I, one person, do to make a difference?” and it seems as if you can’t make an impact on such staggering numbers, but just like pennies, every little bit of effort adds up.

Here’s an example of how you can save money and the environment, too:

1. Cost of 24-count 1/2 liter bottles at Costco: $6.97

If you drink water like you should for the health benefits, this case can last you about six days, maybe less if you’re very active and take in more than the suggested eight cups per day.

Cost per month - $34.85

Total cost per year - $418.20   

2. Consider a reusable bottle like Brita’s FilterForGood.

You can pick up one of these bottles for around $11.00 and it’ll last indefinitely. For people who don’t like to drink tap water, you can buy filtration systems, either in pitcher form or faucet mount form. This will cost around $26.00-$40.00. Filters need to be replaced about every two to four months at a cost of $9.00-$25.00 per replacement.

Let’s add this up over the course of a year:

Cost of reusable bottle - $11.00

Filtration system - $26.00-$40.00

Replacement filters - $54.00-$75.00

Total cost per year: $91.00-$126.00    

As you can see, you can save nearly $300 or more over the course of a year by ditching those individual disposable bottles and opting for reusable. Yes, there will be additional water on your utility bill for the amount you use to fill your bottle daily, but chances are good that it’s less than $300 per year.

Save money: check

Save the environment: check

Stay healthy: check

Put the money you save into an interest-bearing savings account and get even more out of your environmentalism. I think that’s reason enough to look into reusable bottles, don’t you?

Today’s lesson is a study in willpower. Don’t worry, it’s not hard, though some may have a harder time with it than others. Still, if you’re plagued with buyer’s remorse because you make so many impulse purchases, only to regret it later when you get that whopping credit card bill, here’s something you can try. I call it the 24-hour rule.

You see something you want. It’s not a necessity, but you crave it. It can be something relatively inexpensive or maybe something big. The point is, you want it and you want it now. Can you walk away?

If you summon up some willpower, you can. I’m not saying that you shouldn’t buy it — part of being mature about your finances is treating yourself from time to time and knowing when to do it. But what you should do is think.

Go home and think about that thing you want. Get out a piece of paper and make two columns: pros and cons. What are the pros of you buying said item? What are the cons? For example, say I want a $100 pair of running shoes.

Under my pros, I’d list:

1. Good for fitness

2. Investing in healthy lifestyle

3. Can afford to pay with cash 

Under cons:

1. A little more than I want to pay

2. Last pair of shoes still in good condition

You may have a pro list 10 items long and a cons list of 15. It all depends on what it is and what the benefits and disadvantages of you buying it are. If the pros outweigh the cons (especially if one of the pros is “can pay with cash”), chances are you can buy it without feeling guilty. If one of your cons is “have to charge on a high-interest/almost maxed out card” that’s a huge reason to not make the purchase.

After that, take a day to mull it over. I’ve used this tactic since getting financially smarter and in nine cases out of 10, after thinking over it for a day, I decide not to buy. And I realize it was the right thing to do because I don’t miss not buying.

In one instance, I did make the decision to buy. I saw a shirt for $50.00 and I loved it, but I didn’t want to pay $50.00 for it. I went home, thought about it and decided not to buy. A few weeks later, I went back to the store and the shirt had been marked down 50%. At that point, I bought it. I was able to pay with cash, too. I know that’s longer than 24 hours and in some instances, the shirt would’ve been gone, but I knew I could live without the shirt.

Most stores will hold things for you for a day, so there’s no harm in asking and waiting that long to see if you really want it. If, after a full day, you’re still dreaming about that item, go ahead and buy it…so long as one of the cons is not placing you further into debt. 

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.     

Guess which top-selling car on the road today gets you 48 mpg in the city and 45 mpg on the highway? Hint: It’s a hybrid.

The Toyota Prius wins top honors as best-selling hybrid and most fuel-efficient. If you already drive a Prius, you have my congratulations. I long for the day I can zoom around town in a hybrid car, but until they make one large enough for my family of five to comfortably fit in, I’ll have to keep driving my gas-guzzling minivan (by the way, for anyone who’s waiting for the hybrid minivan to hit the market, there’s whispers on the horizon that one is coming, but which maker will be first?).

In these days, fuel-efficiency is a priority. Car dealers report people trading in their SUVs for smaller cars that are better on gas mileage. Who can blame them? Although summer’s peak driving season is over – and gas prices have “mysteriously” dropped now that kids and their parents aren’t traveling to vacation destinations as much – many of us still have to drive.

If you’re in the car-buying market, which cars should you look to for the best fuel-efficiency?

• Honda Civic Hybrid
• Toyota Corolla
• Nissan Versa
• Honda Accord
• Honda Fit station wagon
• Volkswagen Passat wagon

If you look at the rankings by the EPA, you can see just how much hybrids outperform gas-only cars in mileage.

But what about the wait? I often hear that people wanting new hybrids have a four-to-six month wait ahead of them, so if you’re impatient by nature, you may have a hard time with this. Still, it gives you plenty of time to say goodbye to your current car, which, even if you love it, must not be perfect if you’re even thinking of going the hybrid route.

With hybrids only becoming more popular, I wonder what the status car will be for this generation? Maybe not a Porsche, but a Prius.

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:

• 2007 - 74% of households shopped at discount stores for back-to-school supplies
• 2008 - 90% of households shopped/plan to shop at discount stores
• 2007 - 11% of consumers who said they’d buy school products at full price
• 2008 - 1.5% of consumers who say they’ll buy products at full price

 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.        

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:

• Carnival of Living Cheaply
• Finance Fiesta Hosted by Counting My Pennies
• Festival of Frugality over at Student Scrooge
• Carnival of Personal Finance at You Need a Budget

Have a great weekend!

Consider this statistic: 40% of bankruptcy filings are made by women. Most of these women are single, usually on the other end of a divorce. As you probably know, bankruptcy will mess up your credit report for years and make it nearly impossible to get a line of credit anywhere. People who file for bankruptcy usually do it because they feel they have absolutely no other options, but women, if you’re out there reading, remember these 7 things so that you don’t wind up in that staggeringly scary statistic:

You need to know how to:

1. Balance your checkbook. Think this is a given? It’s not. Many women, especially those who hold joint accounts with their spouses, allow their partners to take control of the money while they live in a worry-free environment, free from the “stress” of money matters. Think how stressful it will be if your partner leaves or dies suddenly and you don’t know how to write a check and record it in your checkbook. 

2. Live within your means. While TV commercials and magazine ads would have you believe that you’re worthless if you’re not walking down the street with a $1,000 purse swinging from your arm, the only way you should be waltzing around with a handbag that costs a grand is if you can comfortably carry that much in it and have plenty left over. Too many Americans are so busy trying to buy the latest car, the latest gadget, the latest trendy whatever, that they don’t even realize they’re sinking into debt until they’re being swallowed up. Now is a great time to rein in these materialistic tendencies if you have them.   

3. Budget. This goes along with #2, but if you haven’t yet learned to do this, you need to start today. You have to be able to figure out what you have coming in and how much goes out each month. Are there some areas you can cut back or cut out? Do you really need satellite TV? If you calculate your numbers and you have more going out than you have coming in, you have to cut back and/or make more money and draw up a financial plan.     

4. Pay bills. If you don’t know what bills come in, what they cost on average per month and who you owe money to, now is the time to learn. This includes all accounts in the household: your separate accounts, joint accounts and your partner’s accounts. If he’s not forthcoming about what he owes, that’s a red flag you shouldn’t ignore. Likewise, you need to fess up to him about what you owe.  

5. Manage your finances on your own. I’ll admit, I’m not a huge fan of joint accounts. It’s not the 1950’s and even if you’ve always been a homemaker and never worked outside of the home, you should still have some money that’s your own and that you manage yourself.    

6. Earn more. In the event that you find it difficult to pay your bills on time, you may need to earn more income. This could be in the form of a raise, a second job or a side gig.   

7. Adjust. Things aren’t always going to be the same. That’s the nature of life. If you can’t roll with the punches, it’s going to be very difficult to cope when something changes. You can either curl up in a ball and mope or you can take control of your money and your life and face it head on.

Face it; things sometimes happen. Husbands die or run off with their secretaries to Tijuana. If that should happen, you don’t want to be left behind in such a financial mess that you have no idea how you’re going to get out. Bankruptcy should be an absolute last-resort option, but remember: bankruptcy courts have gotten much more strict in recent years. All of your debt isn’t going to magically disappear because you file. Instead of going through all of that headache, however, take some steps now so that if the worst occurs, you’re prepared.