Debt, Credit Card & Consolidation Current News Digest

Life and relationships aren’t always perfect. Take a minute to think of some difficult people you have to deal with in your life? These may be people you work with, the in-laws that come to town throughout the year, or your neighbor who can’t seem to take a hint. For whatever reason, you’re just not jiving with these people.

Do you flee? Or, do you get flexible and learn to interact?

This post is from staff writer April Dykman.

One of the tenets of personal finance is to pay yourself first. And one of the most sure-fire ways to make sure you do that is to automate your savings: setup your checking account to make an automatic deposit to your saving accounts.

Automation has been incredibly effective for me. I have targeted sub-accounts for property taxes, auto repairs, house savings, and more — a tactic I learned about here. The first year my husband and I had to pay property taxes, however, the billing statement felt like it came out of nowhere — was it really due already? Luckily we had the cash, thanks in part to a very generous wedding gift sent the month before, but that was pure luck. If not for that, we would have had to suspend our debt repayment and possibly dip into our tiny (but growing) emergency fund. When we paid property taxes the next year (and every year since), all I had to do was transfer the money from savings into our checking account, then pay the bill. Much less stressful!

Automation on uncertain income
One of the downsides of being self-employed, however, is that my income is irregular. Irregular income is a reality for most freelancers, as well as people who are paid on commission or on tips, to name a few.

We still have the important expenses — like home insurance, taxes, and retirement contributions — on automation, but a large chunk of our income is being directed toward saving to build our house. Since I’m never sure exactly how much I’ll make each month, I’ve been hesitant to designate a set amount to be automatically withdrawn for that particular savings account. What if a client was late sending payment? And what if that automatic transfer slipped my mind and I forgot to cancel it for the month?

Instead, I’ve waited until bills were paid and automated withdraws cleared, then transferred the remainder (minus some padding that I leave in checking) to our house savings account.

This has worked out okay, but sometimes I forget to make the transfer, and then I’m stuck trying to sort through how much was left at the end of last month, along with whatever expenses we’ve had since then. Also, I like having a system — with automated payments, I can predict how much will be in our account in six months or a year. This is particularly helpful for our house savings account, since we’re paying cash to build our home. Finally, there’s no temptation to spend the money. We’re pretty good about that, but with automation, it’s becomes a certainty.

Found savings
This month our income and expenses had some big changes. In order from smallest to largest, here’s what has changed:

• Yoga membership. I was paying $70 per month for unlimited yoga classes, but cancelled my membership because there were no longer enough classes I liked on the schedule. For now, I’m paying about $44 a month for a per-class pass, and my fellow yoga practitioners and I have set up group practices (free). I also revived my home practice, but cancelled a $15-per-month subscription to online yoga classes. This is a total savings of $41 per month.
• Fuel expenses. I no longer drive to yoga class every day. When I do drive, I make a list of all errands I can run while I’m out to prevent additional trips to the store. And once a week my husband works right around the corner from my yoga studio, so I carpool with him, go to class, then work from a library or cafe until he’s done. After doing this for almost a month, I estimate I’ll save at least $45, which I think is a conservative figure.
• Student loans. My husband’s student loans came due in December, meaning a new $202 payment each month.
• Paid off land. Five years ago we bought an unimproved 2.5 acres where we’re now building our home. We elected for a 5-year loan to force ourselves to pay it off quickly, and guess what? As of January 15, we own the land free and clear! This frees up $710 each month.

With these savings and the new expense, we now have $594 of “found” money. This money used to be tied up in other expenses, and even after I quit my day job a year-and-a-half ago, we never had a problem paying them.

I realized this is a perfect time to automate our house savings. Instead of making the transfer of the extra $600 each month (may as well round up, right?), I set up an automatic transfer of $600 from our checking account to our savings. Of course I’ll still have to transfer anything above that amount, but for now, the $600 inches me closer to automation.

Additional income, snowballed
A little excited about the idea of automating our house savings (I’m kinda nerdy like that), I started to think about other ways to automate more of our savings.

Right now I’m talking with a client about working together on a more regular basis. This client has always paid on time, and I’d be writing for them biweekly. This new income source could be funneled into our automated house savings, since it will be predictable (well, as predictable as an income source or job can be). I can do the same thing with any future, regular work.

I held off on automating our house savings because of my irregular income, but even people with a fluctuating salary can automate a good portion of their savings. Start with found money from paying off debt or cancelling a subscription you haven’t used in months, then increase the amount even more if you have extra, regular income (above what you need to pay the bills). This might be income from a second job, a side business, or overtime you work regularly, as examples.

Finally, remember that even small amounts will start to add up. That’s something I dismiss sometimes because a few dollars doesn’t seem like enough to make a difference. But if we downgrade our Netflix membership, something I’ve been considering based on our rental history, I plan to add the $8 savings to the automatic savings deposit — I guess I’m feeling extra motivated!

If you have an irregular income, what is your savings system? Do you automate your savings, or do you have a hybrid system like mine?

The Obama administration is taking another swing at improving its main foreclosure prevention program.

Many people think they can plan on spending less later in retirement since they’ll become less active as they age. But if their health declines, they may actually shift spending rather than reduce it. Do you think it’s risky to plan as if one’s expenses will go down later in retirement? –Tim, U.K.

Be proactive before you make the switch to full time entrepreneurship. It’s a statement often dished out and applied to people who attempt to do something they’re not very good at, a statement made to discourage those who are seeking out an alternative career path: “don’t quit your day job”. In the entrepreneurial world, this [...]

Want To Be Your Own Boss? Steps To Take Before Going Solo

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New home sales had their worst year on record in 2011, with the estimate of 302,000 single-family homes the lowest reported annual total since the Census Bureau started tracking the data in 1963.

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Read More at MortgageLoan.com

The WSJ Wealth Report blog talked about a Pew Research Center study that attempted to find the origins of the conflict between rich and poor, which has been playing out in the headlines lately. While the main story talked about the impression of significant conflict between the rich and poor, the part that interested me was the same one that caught Robert Frank’s eye – did the rich get rich from hard work or their social network? That poll showed that 46% of respondents thought they were born with money or knew the right people, while 43% thought hard work, ambition or education was the root reason.

There obviously isn’t a definite answer, there will probably never be, but the question is an intriguing one. My belief is that both are necessary and the more you have of either, the higher your probability for finding success. Whether that success comes in the form of money or in the form of achievements, it’s hard to argue that you can be successful without hard work, ambition, education, or knowing the right people. Whether you’re rich depends on where you point yourself. You can be a successful philanthropist and not have a high net worth, you’d still be seen as very successful, you just chose a different path.

What do you think?

Your Take: Hard Work or Connections? from personal finance blog Bargaineering.com.

One common request from new GRS readers is some sort of central location where they can find a list of introductory articles to guide their progress. This is a great idea, and I’m working on it. Some of the GRS elves are working on a “Guide to Money” that will provide some of this info, but I envision a single page that collects all of the relevant articles for folks starting out.

In the meantime, folks like Ashley are hoping they can get some help now. Ashley writes:

I’m a new reader to the blog and just wanted to say thanks for presenting often overwhelming information in a digestible manner. As someone whose former financial philosophy was “ignorance is bliss”, GRS has played an integral part in my transformation from 30 year old faux-dult to real, live adult, at least in the personal finance category.

My question is this: What does a generally healthy personal financial portfolio look like? What are some must-haves for everyone and in what order should I work on getting them? It seems like a simple question, I know, but I’m picking myself up from living paycheck to paycheck and struggling with debt and I want to set some goals: savings, debt, retirement, investments (gulp). I realize it’s hard to generalize, but what do a good adult’s finances look like?

Ashley’s right: It is hard to generalize. Everyone is different, with different strengths, different weaknesses, and different goals. Still, it’s possible to make a few recommendations. There’s a core group of financial structures that I believe are important to everyone. And there are many ways to customize a “personal financial portfolio” (as Ashley calls it) in order address you own personal aims.

Building a Base
When I talk with people about how they should set up their finances, I generally recommend the following:

• Carry no debt — except maybe a mortgage. Though there are a handful of exceptions to this rule, I believe that most of us shouldn’t carry non-mortgage debt. We should avoid credit cards, car loans, and other consumer debt. Sure, that means we have to wait and save. It may mean that we drive used cars. (I drive an eight-year-old Mini Cooper!) But avoiding debt allows us to reach big goals while others are barely getting started with the small stuff.
• Build adequate emergency savings. What is “adequate” savings? That’s tough to say. When you’re just starting out — especially if you’re carrying debt — adequate savings might mean simply that you have $100 in the bank. But as time goes on, you’ll want to build a buffer in the bank. It’s an amazing feeling to know that were your job to vanish, you can still get by for six months before falling into debt.
• Fund your retirement. When you begin saving for retirement, you won’t have much. Plus, retirement will seem as if it’s decades away. Because it is. But just because you have 45 years before you’ll be eligible for retirement benefits, that doesn’t mean you shouldn’t start. The biggest factor in retirement savings is how much you contribute. The second biggest factor is time. If you start socking money away in a Roth IRA or a 401(k) when you’re just 20 years old, you’ll be light years ahead of your peers. (And that’s when you’re 35, not even when you’re 65!)
• Be insured. Some people think they’re above the law of averages, above forces of nature, and they choose not to carry adequate insurance on the important things in their lives — such as their car and their home and their body. But as most of us here can testify, bad things happen. And when they do, costs add up. You can mitigate the expenses by carrying adequate insurance, by which I mean the right insurance (and the right amount of insurance) for your circumstance. What type of insurance (and how much) is that? The answer’s different for everyone, but it’s not difficult to learn.
• Develop a budget — even if it’s just a loose guideline. When you have a budget, you’re telling your money where to go. You’re in control. Without a budget, it’s easy to lose track of what you’re spending where. A proper budget doesn’t have to be super detailed (thought it can be if that works for you). Instead, it simply has to guide your spending in a way that keeps you from losing control.
• Boost your income. There are two camps when it comes to increasing income: Those who think it’s irrelevant (or impossible) for their situation, and those who know it’s difficult but do it anyhow. I’m convinced that those who work to make more money, despite the obstacles in their lives, have more financial success.

These are some of the basics, though not all of them. These core skills and habits can help almost anyone get started on the path to prosperity.

Customizing Your Course
Once you’ve become accustomed to the basics, it’s important to customize your financial habits and structures to reflect your personal skills, goals, and psychology.

For instance, some folks are opposed to debt in all forms. These people avoid credit cards, certainly, and often try to avoid mortgage debt as well. Other GRS readers love credit cards. They never abuse them, never carry a balance, never pay any sorts of fees. And some are eager to carry a low-rate, long-term mortgage because they figure they can put that money to work elsewhere to earn a better return.

Another example is automation. For most people, automation is liberating. By creating a system whereby you make automatic contributions to saving, to your retirement plan, and to your bills, you take the weakest link — you — out of the chain. But for a few people, automation actually creates problems. For these folks, it’s important to do things manually.

So, you see, once you have a solid financial base, you begin to build a customized financial framework based on your personal needs. And these needs are determined by your goals.

Until you have personal financial goals, you can’t really know what’s “healthy” for you. Emergency funds are a great example. Some folks — such as Trent at The Simple Dollar — don’t feel comfortable unless they have sizable emergency fund, such as a year (or more) of monthly income. I, on the other hand, am okay with six months worth of expenses in savings. Based on my psychological make-up and my personal goals, this is plenty.

Reader Response
My own financial profile? Let’s see if I can summarize it quickly:

• I carry no debt, but I do use credit cards. I repay the balance every month and pocket the 1% cash-back rewards.
• I have six months of expenses in emergency savings.
• I fully-fund my retirement plans every year, meaning I fund them to the maximum that the law will allow.
• I invest in low-cost index funds instead of trying to beat the market through guesswork.
• I carry adequate insurance, but employ high deductibles to reduce my costs.
• I use targeted savings to pursue other goals, such as travel. By using multiple savings accounts, I’m able to save for the things I want without losing track of my larger goals.
• I use the balanced money formula to keep my spending on track. This isn’t a strict budget, but it’s a lose framework to guide my financial decisions. I like it.

There’s more to it than this, of course. That’s where you come in. Until I’ve had a chance to compile a beginner’s guide to personal financial mastery, Ashley’s best bet is to listen to the advice of GRS readers.

What do you think? What advice do you have for Ashley? Is there such thing as a one-size-fits-all starter financial portfolio? If so, what does it look like? How does it change with time? If not, then what do you think different people should do (and have) at different stages in life?

Want to be a landlord? Here are some points to consider. For those of us who are investors, real estate has been considered as a decent, long-term investment that can provide us with some reasonable level of diversification. Its historical returns have been somewhat lower than stock market returns over the long run as measured [...]

Is Investing In Rental Property A Good Move?

Copyright 2011 TheDigeratiLife.com All rights reserved.

Mortgage rates headed upward this week, ending a three-week stretch of all-time lows for 30-year fixed-rate loans.

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Read More at MortgageLoan.com

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