Archive for April, 2009
Friday, April 17th, 2009
Today I want to get the discussion going about whether some financial products are inherently bad. In other words, are there financial products that are a poor choice for everyone, at all times, just by their nature?
Financial Products Often Characterized as Bad
- Retail Credit Cards
- Adjustable Rate Mortgages
- Whole Life Insurance
- Variable Annuities
Can you think of some other financial products that get a bad rap, justified or not?
Many Variations
One overall problem I see with blanketing these products with the “bad” label is that each can come in several different variations. The amount of choices within the personal finance realm is truly dizzying. Did you know that Vanguard (beloved, low-cost investment broker) sells variable annuities? They wouldn’t sell a bad product, would they?
Everyone is Different
Another problem with labeling all these products bad is that they are used by so many different people. It’s called “personal” finance for a reason. What’s good for you isn’t always best for your 80 year old grandmother, nor your neighbor down the street. Likewise, what’s bad for you might be perfect for another person.
Take the Time to Understand What You’re Getting Into
All this leads me to one take-a-way: since there are so many choices now, and since every one’s situation is different, we should each spend time learning about the financial products we are using. Is there a single financial product, that if well-researched, applied correctly, and used intentionally, will do a person harm? I don’t think so.
Now, I challenge the idea that you have to become an expert on each product. Although it wouldn’t hurt. All you really need to do is pick up a book, blog , or magazine and get a basic understanding. Then, seek out different opinions from various commission-free people in your life. This could be people you know, mainstream financial gurus, Certified Public Accountants, and Certified Financial planners.
But don’t stop there. Don’t just depend on others. Apply what you learn, the opinions of others, and your own personal b.s. meter, to the decision. If you have doubts and things aren’t agreeing with your personal risk tolerance, then you still have the control to say no.
Where not to get your information: from the person selling it to you!
I definitely get sold from time to time on various products. Life just happens like that. I strive though, to get my information from several sources: other financial bloggers (they usually know the latest and greatest), financial gurus like Liz Weston and Dave Ramsey (their credibility depends on them being right) , and from my friends and family (they know me best and know the local implications). Hopefully after all of that is applied I can weed out the truly bad financial product and make a good decision for me.
Okay, so what do you think? Are certain products just bad, no matter what? Let me hear from you in the comments below…
FYI…Today marks two years since I first started blogging about finance here at Prime Time Money. Thanks for continuing to read and participate.
Posted in Money Stories | 8 Comments »
Wednesday, April 15th, 2009
Credit Cards Will Steal Your Lunch Money
You may remember when you got your first credit card. Perhaps, you just moved out on your own for the first time and someone offered you a piece of plastic with a seemingly endless supply of money.
Sounded to good to be true didn’t it?!
Of course it did, but we all took it anyway and started swiping it anywhere and everywhere the card was accepted. But then do you remember the day you got your first statement in the mail?
Not one of your brighter moments in life.
You’d been on this wild and crazy shopping spree but when that bill showed up, you quickly came down from the clouds and realized you owed a lot more money than you had. And thus began your college career of eating ramen noodles for breakfast and Kraft Mac & Cheese for every other meal.
Why?
Because credit cards had stolen your lunch money.
Dramatic story isn’t it?
So how do you keep this far-too-common life experience from occurring to your teen?
Teach Them How Credit Cards Work
It seems self-explanatory. You swipe your card now, and you pay for it later. It’s not that difficult right? But you and I both know there is more to credit cards than that. Teach your teen about interest rates, hidden fees, and how the use of that card will affect their credit score. A lot of students find themselves in a credit card mess, because they weren’t taught this stuff. Were you? Probably not.
Teach Them The Dangers of Credit Cards
I’ve seen statistics that show the average college student has anywhere from $2,700 to $3,300 in credit card debt. And about 10% of college students owe more than $7,000! And to think that all a credit card company is going to give you for the opportunity to rack up this debt is a measly t-shirt you’ll wear twice. No thanks…I’ll pass.
Teach Them To Live Without One
Rather than running the risk of a credit card stealing your lunch money, teach your teen to not be dependent on one. The best kind of plastic is a debit card or just good ole’ fashioned cash will do the job. If you can instill this mindset in your child at a young age, you’ll potentially save them years of heartache and financial problems.
This series, “12 Things Every Teenager Needs To Know About Money (And How To Teach Them)”, is a community blog experience. This post is only one of the 12 points in the series. To view the other 11, please visit the list of links below.
This is a guest post from Grant Baldwin, the author of Reality Check, a book about helping students transition into the real world. His new website, BrokePiggy.com, answers questions from teenagers about personal finance, savings, and all things money.
Posted in Credit Cards and Credit | 17 Comments »
Tuesday, April 14th, 2009
My Company Stopped Matching the 401k
Beginning this month, my company is no longer matching my contributions to the company 401k. That’s essentially $2,000 less in compensation I’ll receive this year, if they don’t match for the remainder of the year. They do say that this is a temporary, precautionary move. Still, this is disappointing news.
I thought about making this post a rant about why that is a horrible cost cutting idea (hurts those that are most responsible, doesn’t really save that much, etc.), but I decided instead to talk about what I’m going to do in light of this change. How am I going to respond?
I also don’t want to rant because I know (a) not everyone even has this benefit to begin with, (b) not everyone even has a job right now, and (c) I don’t want to let them (my company) know it got to me. 
I can tell you up front this doesn’t discourage me from saving for retirement (nor does the current economic situation, really). If anything both make me want to contribute more to retirement. The one thing it definitely does though is make me rethink how I want my investment mix to look once I’m 5 years from retirement. Can you say ultra-conservative!
For further thoughts on contributing once the match isn’t there, see Things to Consider if Your Company Cuts the 401k Match. Very useful article and definitely made me rethink the idea of ranting about this whole thing.
What’s Better Than a 401k?
Since I’m going to forge ahead, I guess the question I have to ask myself is, where does the 401k now fall in priority to the rest of my financial goals, and are there now better vehicles to help me achieve those goals?
The traditional order of action for retirement savings and improving your net worth has been:
- Contribute enough to get the 401k company match.
- Then, if you have more to save, put it to a Roth IRA and contribute the maximum.
- Then, if you have even more, go back to the 401k and max it out.
- And if you have even more than that, contribute to a taxable investment account.
The reason this is traditionally the way you’re instructed to invest is because of the limited number and higher cost of investment options held in a typical company 401k. Plus, some would tout the tax advantages of a Roth vs the 401k.
A Roth IRA is?
I just recently opened my first Roth IRA. And if you’ll remember, that was over and above my 401k matching and maxing out efforts. And you might also remember those Roth IRA contributions I attributed to tax year 2008. So, last year, I handled my 401k upfront to the max, and then moved to the Roth. Basically, I did 1, then 3, then 2 in the list above. fyi…the Roth is invested in a stock market index fund, while the 401k is in a target-date fund.
This year, I really don’t see any reason to make a drastic change from that plan. I will attempt to max out 401k contributions by 12/31 and max out Roth IRA contributions by 4/15/10 for both my wife and I. Since I plan to do both, I guess it doesn’t really matter what order I take it. In fact, I think the due dates lend themselves to doing it in that order. Do you agree? Let me know if I’m missing something here.
By the way, while I was writing this post I was also wrapping up 2008 taxes. It should be noted that maxing out my 2008 401k contributions saved me around $4,000 in taxes. Take that, upper tax bracket!
I feel like this post led to nowhere. Sorry bout that. Hopefully it will at least spur you on to saving more for your retirement. The benefits can be huge, even if the company isn’t matching anymore.
Posted in How To Save Money, Money Stories | 10 Comments »
Sunday, April 12th, 2009
Happy Easter! I hope today you’ve been able spend time with family and celebrate the reason we have this holiday. I’m busy finishing up some information gathering for our taxes and watching The Masters. Here are some quality links I noted this past week:
I also wanted to share that FreeShipping.Org just started up their “Go Frugal” Blog. Each day at their new blog you’ll find valuable tips and money-saving ideas from some of the web’s foremost deal-hunters, savvy shoppers and cost-conscious bloggers.
Blog carnivals I was in…
Lastly, here’s a guest post I shared over at Financial Literacy Month:
Have a great week ahead!
Posted in Personal Finance Links | 2 Comments »
Friday, April 10th, 2009
So what does it mean to be ready financially for a child? Here are a few steps I’ve thrown together to help you think it through:
What it Costs to Have a Baby
I think most of us are pretty clueless when it comes to how a baby will affect our finances. The numbers are pretty daunting when you first see them:
“Childbirth and prenatal health care cost averaged $7,090 for normal delivery in the US… [The] US Department of Agriculture estimates that a US family will spend an average of $11,000 to $23,000 per year for the first 17 years of child’s life on a child born in 2007.” – wikipedia
I feel like those numbers are a bit high. Still, you’ve got to put some stock in them and realize that it’s worth your time to think about how much having a baby will cost you.
Pre-Labor and Delivery
Let’s look at some ways to get a good understanding of what it might actually cost you to go to all those doctor visits and to deliver your baby in a hospital:
Ask Your Friends, Co-workers, and Family – I’d start by asking a co-worker who recently had a baby. They’re more likely to have used your work’s health care plan and your local hospital. They can give you a good idea of what they had to pay out of pocket for the delivery.
Examine Your Health Care Coverage – Take an evening to understand exactly what your current health care plan will cover. You might be able to switch to a more beneficial plan, reducing your overall out of pocket expenses for the pregnancy and delivery. We’ve currently moved to our premium plan while we’re expecting and will re-evaluate plans soon now that our child is born.
Call the Doctor’s Office – If you already know what doctor you’ll likely be using for the delivery, place a call to his/her office and ask for a cost estimate for all the pre-labor visits and the actual delivery. They may even be able to give you an estimate based on your current insurance.
The First Year
Next, you should examine what the first year of your baby’s life will cost you. There are a lot of things to consider here. I’m not going to try and list them all, but I will refer you to a handy tool that helped me:
Use the Calculator at Baby Center – The baby cost calculator at BabyCenter.com is an all-encompassing tool for helping you estimate what it might cost you to have a baby and take care of them in the first year. The calculator considers the basic equipment and supplies and even factors in child care and loss of one income.
Take Action to Prepare for a Baby
Now that you’ve got a feel for what it costs to deliver and raise a kid for the first year, you need to take steps to prepare your finances. Here are some ideas:
Start Saving Up – A good place to start is to make sure you have enough money saved up so that you don’t have to go into debt as a result of delivery and first year costs. Make it your goal to save up your total estimated amount by the time your baby is born. If that’s too aggressive for you then shoot for the delivery costs and half of your first year expenses.
If you’re about to start trying to get pregnant, simply divide your total estimate by 10 months, and begin setting that much aside in a savings account every month. If you’re already expecting, just use the number of months you have left. Lastly, you need a place to put your savings. If you haven’t already, you should try a high-yield savings account.
Get Rid of the Excess Debts – Bringing a child into this world gives you the opportunity to press the reset button on your life somewhat. Take advantage of this change and plan to get rid of that nagging credit card debt or student loan payment. Use this nine months to knock it out and be ready to start a debt-free life with your new baby. This will make you feel better and it will free up room in your budget for these extra expenses.
Final Thoughts on Babies and Finances
The wonderful thing about preparing for a baby is that we have nine months to do it. So, even if your child wasn’t planned out perfectly on the calendar, there’s still time to get your financial act together. Take time to understand what your financial needs will be and then take action to prepare yourself.
Another version of this post was originally published at Bargaineering.com.
Photo by Kevin N. Murphy
Posted in Kids and Money | 16 Comments »
Wednesday, April 8th, 2009
Are you smarter than this 4th grader? Jenna Fink, of Frisco, TX knows her stuff. She drew the Elementary school grade category winning poster in the National Foundation for Credit Counseling (NFCC) 2009 Be Money Wi$e National Financial Literacy Poster Contest.
“The purpose of the contest is to introduce young people to the concept of financial literacy, and allow them to express their understanding of it through art. This year, more than 4,000 posters were received illustrating the theme of ‘I’m going to be a millionaire because I…’”
Jenna beat out a bunch of other entries. And you can see why…
Click on each section to explore a topic further.
I’m impressed by the vast array of topics this little 4th grader touches on: frugality, budgeting, credit cards, investing. It’s all in there. See the other winning posters and read more about the contest at the website www.moneywisepostercontest.org.
Posted in Kids and Money | 17 Comments »
Monday, April 6th, 2009
Quicken Online is a product I’ve been meaning to review for quite some time. I finally got around to playing around with the online financial software this weekend. I was pleasantly surprised at how easy it was to sign up (literally one page), how quickly I could connect my financial accounts (just minutes), and how smooth and clean the web interface was.
Understanding Your Finances
I firmly believe that to have success with our financial situation we need to understand what savings and investments we have, how much we owe, and what we’re spending our money on. This is literally step one to getting it right when it comes to handling money. I call it, seeing the big picture.
Why should we bother? Because we have goals for our money: giving more of it away, saving more of it for security, spending more of it on experience. To get to those things in life, we need to put forth a little effort. Taking the time to understand it all is step one.
That being said, Quicken Online will help anyone understand their full financial situation fairly quickly. Here’s the account sign up page…
Connect Your Accounts
After the ultra brief account sign up process, you’re greeted with a search box and list of financial institutions. Here you can search for all your financial accounts: banks, investment firms, credit card companies, other lenders, etc. Here’s a nice screen shot of the account finder page, followed by the account log-in page:
I was able to find all but one of my accounts. For some reason I could not locate one of our student loan providers, EdFinancial Services. I’ve had this problem with online financial software in the past. This has been a source of frustration as I’m not really seeing my entire financial situation in one spot.
Oh well, at least it’s just one account. Here’s hoping my review will get the Quicken Online folks to add that institution. Speaking of the Quicken Online folks, if you ever have a question about Quicken Online, you should connect with their social media queen, Chelsea. Follow Chelsea on Twitter.
Tracking Your Spending
Once you’ve connected your accounts, tracking your spending is automatic. When you connected your checking accounts, Quicken Online automatically imported 90 days worth of activity. So, you’re ready to see where you spend your money. You’ll likely have to go in an categorize some transactions, as the banks providing the data don’t always provide a good explanation of the item.
Set Goals and See Trends
I tend to want to stop at just seeing all my accounts in one spot. However, if you’re feeling ambitious, you can dig into the goals and trend sections of the website. Both look pretty cool and could be just the thing you need to achieve your personal savings goals or to curb some spending.
Security Concerns
Intuit, the creator of Quicken Online, go to great lengths to explain how they ensure customer security. If you have concerns in this area I challenge you to check out the privacy promise and security video.
The Quicken Online Blog
One last note about Quicken Online. They have a blog of their own, the Quicken Online Blog. There you’ll find quality articles on saving, budgeting, spending less, and Quicken Online product updates as well. Yours truly is actually a contributing guest blogger on a monthly basis. Read my post from last month on getting serious about savings.
Now it’s your turn. Share your thoughts on tracking your spending and using Quicken Online in the comment section below…
Posted in Organize Your Finances | 7 Comments »
Sunday, April 5th, 2009
It’s another beautiful Spring day today. I definitely need to make some time to get outside for a walk or maybe do some long overdue reading at the park. I hope your Sunday is going well.
If you haven’t already, I’d encourage you to simplify your daily Internet time by adding all your favorite blogs and news websites to a rss reader like Google Reader. Instead of “surfing” the net mindlessly, you can have all the content delivered to you in one spot, like your own personal online newspaper. More about rss…
Lastly, if you ever want to connect with me other than on the blog, you can find me on Twitter and on Facebook.
Okay, here’s a few QuickHits for ya…
A Gift Card for Your Old Cell Phones
Greatnexis Personal Finance was launched this week. You can scan the latest headlines from multiple news and social media sites, as well as see some of the popular videos on YouTube.
Head over and cast your vote at the FMF March Madness Challenge Final Game. Two familiar faces are in the running: Bible Money Matters and Gather Little by Little.
The best of Get Rich Slowly articles on personal finance skills. A wealth of knowledge here.
10 Tips to Declutter Your Finances
Social Media Sites that Help You Manage Your Finances
Chasing High Yield Interest Savings Accounts
2008 Retirement Contribution Deadlines
Once You Pay Off the Car Loan
Sell Your Home BEFORE You Buy Another
Money Hacks Carnival
Carnival of Debt Reduction
Carnival of Pecuniary Delights
Posted in Personal Finance Links | 2 Comments »
