March 2008

With health-care costs rising even faster than the rate of inflation over the last few years, its no wonder that one of the key issues of the presidential campaign season is health-care reform. Many people are worried about whether they will continue to be able to afford health-care premiums, prescriptions, or other medical needs in the coming years. Similar to investing for your retirement as early as possible, by taking care of yourself and your body as early in your life as possible, you can potentially avoid health problems later in life. Here are some ways to start living healthier now.

Get regular medical checkups-While you may have to pay a co-pay for an office visit, it makes no sense to spend hundreds of dollars a month on your health-care premiums only to skimp because you don’t want to pay a co-pay for a visit.  A lot of people, myself included, don’t really like going to the doctor, especially when we don’t feel ill, but getting a checkup ever year or two, even if you are young and healthy, (or more often if you are older) can alert you to potential problems such as high cholesterol, high blood pressure, or other conditions which can develop into lifelong chronic illnesses if you don’t take preventative measures early enough.

Get enough sleep-The amount of sleep an adult needs every night is debatable and varies from person to person (many experts recommend between 7 to 8 hours a night), but you generally know when you are not getting enough. 

Get your teeth cleaned regularly-This is another area where people like to put off regular visits.  But putting off regular cleanings and exams can turn small problems, such as a small cavity, into larger ones such as a crown or other dental work.  Again, if you have any sort of dental insurance, use it. You should also brush twice a day and floss your teeth.

Take Vitamins- The argument against taking vitamins, which some people even consider a waste of money, is that you can get all you need from a well-balanced diet.  If you are lucky enough to eat a well balanced diet every day, then maybe you don’t need to take them.  But I would guess that a lot of people don’t eat as healthy as they would like, and taking a generic multivitamin everyday is pretty cheap insurance that you are getting at least the RDA of important vitamins and minerals.

Get regular exercise- Simply adding 15 to 30 minutes a day of something as simple as walking can improve your overall health, and exercise is a great stress reliever as well.

Drop your Bad Habits- Smoking, excessive alcohol consumption, and unhealthy eating habits all work against you living a healthier life and lifestyle.  By giving up your bad habits, or at least cutting back, you will feel better, become healthier, and potentially live longer.

Many people will be getting money from the U.S. Government over the next few months. Some will be getting a tax refund, while others will get the economic stimulus rebate (Remember you need to file your taxes for 2007 1st in order to get the rebate!), or both. While most people get excited at what could be considered a “windfall” of sorts (although the refund is really an interest-free loan you provided the government over the last year), take some time to think before you spend. Below are several ways to “spend” or use your tax refund or economic stimulus rebate wisely.

Start or add to an Emergency Fund-If you don’t have an emergency fund, you need one now.  Start with some amount, $250, $500, $1000, based on whatever you are getting back from Uncle Sam, or a part of it, and park it in a online interest bearing savings account such as ING Direct. (if you use a link from my ING referral page and deposit $250, you will get $25 free, and I will get $10). If you are just starting an emergency fund, continue to add something to it out of every paycheck until you reach an amount that you feel comfortable with.

Pay off Debt-This is a no-brainer. If you are in debt, this is a great way to knock down a significant amount that you may not have been able to do otherwise.  If you have an emergency fund, and are still in debt, especially higher interest debt like credit cards, use your rebate or refund here.

Open or fund a Roth IRA-If you have a tax refund, you can fund a Roth IRA for 2008.  A trick you can use to fund a Roth IRA for 2007 (must be funded before April 15th), if you have a well-funded emergency fund and are getting a tax refund, is to borrow it from your emergency fund after you calculate what your refund will be. You then file electronically, and you will likely get your refund within about 2 weeks, after which you can replenish the amount back to your emergency fund.  (Don’t forget to put it back!)  You could possibly do this with your economic stimulus rebate, but you will have to wait until the check arrives, so you will have to take a little more risk until you can put the money back in your emergency fund.

Open a College Savings Fund- Open or add to a 529 account for your child(ren).

If you do spend it, spend it wisely- Don’t use it to add a recurring expense to your life, especially a depreciating asset. Even if you aren’t in any debt, and want to get into the “boost the economy spirit”, use the money wisely. For example, don’t go out a buy a new car because you now have a down payment. Instead, place it in a high interest savings account and save for a new car. If you buy a new (or used) car and finance the remainder, you are only adding to your monthly expenses over the next few years. You windfall has created a recurring liability that you will have to pay for out of your own money for the length of the financing agreement. In fact, even buying a new LCD TV could add a recurring expense to your bottom line. You may decide to add an HD package to your or additional cable channels to your cable or satellite package, thereby adding $20 or more to your regular monthly expenses.  Whatever you do spend it on, try not to purchase something that will increase your monthly expenses.

How Are You Doing With Your Personal Finance Goals or Resolutions for 2008?

Now is a good time to perform a review of your 2008 personal finance goals to assess your progress. If you have been keeping up with your goals over the last two + months, you are probably doing well. After two months, the changes in your behavior you have made to reach your debt reduction or savings goals have probably become habits. If that is the case, it will be a lot easier for you to continue them throughout the rest of the year.  But if you are like most people, including myself, you may not be completely achieving the goals you have set, whether they are money related or something else.  Before you give up or stop completely, reassess your goals and get back on track.

Ask yourself the following questions:

Are your goals clearly defined? Your goals may be too vague, such as “I want to pay off all of my credit card debt this year.” Poorly defined goals do not lend themselves to being achieved. If you are paying off debt, you need to take the amount you want to pay off by the end of the year and figure out how much you need to pay off on a monthly or weekly basis. Your long term goal is then broken into smaller, well-defined short term goals. For example, snowflaking is a great way to continually focus on reducing debt.

Are you sticking to your plan? Did you promise yourself you would give up something to free up money for your goals? Did you? Have you looked at your expenses to see where you can trim them like you said you would? Have you figured out how you are going to meet your goals by planning your debt reduction or investing strategy?

Are you meeting milestones? Have you met any of your weekly or monthly milestones, such as paying $200/month towards your debt, or investing $50 out of every pay check?

Take time to assess. Now is the time to look at your goals with a “critical eye”. Be honest with yourself.  If your goals are too high, you will be unable to reach them and may be more likely to give up completely.

Adjust your goals by planning now. After assessing your progress thus far, consider adjusting your goals. If you can’t pay off $200/month towards your debt, how about $150 or $100? Pick an amount you feel comfortable with now and make that your weekly or monthly goal. You can increase this as time goes on.
Recommit your self to achieving your goals. Take the next few days to really think about your goals, why they are important to you,  why you want to achieve them, and the sense of security and freedom being debt free or building wealth will give you. Commit yourself to sticking with your revised plan and meeting your goals and get back on track!

Looking for ways to kickstart your debt reduction or savings goals? Try using extreme measures to give yourself a boost.

Even though my commute is only 3 miles one way to work, I do drive quite a bit on the weekends, and frequently take longer trips.  My wife does quite a bit of driving throughout the week as well. With the price of a gallon of gas having risen to about $3.10/gal. in my part of the country, I have been trying to adjust my driving habits to increase my mpg’s. Here are a few tips to remind you how to drive more efficiently and increase your gas mileage.

1. Combine errands- Instead of running 3 or 4 errands on the weekend, try to
   take care of everything in one trip. This can actually help you plan your shopping better as well.
2.  Make it a habit to pick things up, if possible, on the way home from work or when you are already out. Make a list to remember things you need, or call your spouse to see if you need to pick anything up.
3.  Go inside, don’t use the drive-thru- At the bank, fast food places, etc., you can frequently spend 10 minutes or longer in a drive-thru line.  When you idle you get 0 miles per gallon-Try not to idle (except at a stop light) for more than 20 to 30 seconds.
4.  If possible, avoid stop and go traffic-Consider altering your normal route (depending on how much longer it may be.) to avoid lost of stopping and starting.
5.  Accelerate slowly-Even acceleration and braking is the key to maximum fuel efficiency.
6. Use cruise control while on the highway.
7. Consider adopting the safe hypermiling techniques (I would consider some of these -such as drafting behind an 18-wheeler truck-to be dangerous) But coasting well in advance of a red light when there is no one behind you, driving slower when there is no traffic, etc. are quite OK and can boost your gas mileage.)
8. If your car actually runs better on a higher octane gas (mine does) consider try filling up 1/2 with higher octane and 1/2 with the lower octane to see if helps.
9. Keep your trunk empty-Carrying extra weight will decrease your gas mileage.
10.  Inflate your tires to the recommended psi-This can usually be found on a sticker on your vehicle’s door jam.

The Baglady hosted the Carnival of Personal Finance #142-The Homeless Edition and included my post “Are I Bonds A Good Investment Option Now?” Great job with the carnival this week.

The Broke Grad Student hosted the Festival of Frugality #115-with a ramen noodle theme (brings back memories!) and included my post Saving Money With Your Car-Be Prepared While Driving.

Lynnae at beingfrugal.net hosted the Money Hacks Carnival #2-Gardening Edition, and included my post “What’s The Real Value of a Dollar? It Depends on Whether You’re Paying Debt or Building Wealth”

My favorite reading from the past week:

Ron @ the Wisdom Journal- had a post on Five Massive Money Mistakes I’ve Made. I think I have made those five and about 25 more!

Steve at Bripbrap- Started a series on one of my favorite books,Think and Grow Rich by Napoleon Hill. This post goes over the 2nd of the 31 causes of failure.  I look forward to reading the entire series.

 Congratulations to the following PF Bloggers:

Mrs. Micah- had a busy week, launching the Finwikian and joining the M-Network.

J.D. @ Get Rich Slowly-worked his last day at his day job to join the rank of full-time bloggers.

  Upromise, the consumer rewards program where you can earn money for college expenses (they recently added a feature to allow you to pay your own student loans, and if you have no one to save for college for you can request a check be sent directly to you) is providing bonus savings with select merchants throughout the month of March. Upromise is free to join, and allows you to save money for college when you make purchases through select retailers, restaurants, and even gas stations. You can also register store bonus cards (such as CVS, grocery stores, etc.) to earn money on specific items.
Below is a list of retailers offering increased savings for the month of March:

Lands’ End 3% Now 5%  
Staples.com 2% Now 3% 
Nordstrom.com 3% Now 5% 
Macys.com 3% Now 4%
PotteryBarn.com 3% Now 4%
OfficeDepot.com 2% Now 3%
Shoes.com 0% Now 9%
Apple 1% Now 2%
hsn.com 4% Now 6%
Patagonia 3% Now 4%
homedepot.com 2% Now 3%
Magazines.com 25% Now 30%
eToys.com 2% Now 5%
Oriental Trading Company 4% Now 5%
PC Connection 2% Now 4%

I have been a member for a little over a year, and have nothing bad to say about Upromise.  A really good way I have found to use it is for business meals, i.e., when I take someone out and can then get reimbursed by my employer-I end up making a little money! Also, restaurants pay a pretty decent percentage, and some have recently raised it as high as 8%. You can type in your zip code on the upromise site and they will give you a list of local participants.

Join Upromise now to save for your children’s education, yourself, or even pay off your own student loans.
Upromise - Turn your everyday spending into college savings

Although this is the first time in 13 years that Bill Gates in not No. 1, no, I don’t have any real secrets on how to become the next Warren Buffet (No. 1-$62 Billion), Carlos Slim Helu (No. 2 -$60 Billion), or Bill Gates (No. 3 -$58 Billion).  But the numbers themselves and the fact that they have changed over the last year do indicate something significant, yet simple in nature. While Bill Gates’ net worth only increased a modest 3.5% over the last year, that amount was $2 billion dollars!

The faster and earlier in your life you invest your money and have it work for you the sooner even an average or below average return on your investment (3.5%- about what ING Direct is paying right now) represents a significant amount of money, or, as in the case of Bill Gates, $2 billion dollars. Now, it is unlikely that you or I will ever amass enough wealth to generate that kind of money from a 3.5% return, but the more money you can sock away, as quickly as you can, the faster you will build wealth. And if you happen to have a pretty good year, like Warren Buffet, gaining $10 billion dollars or 19% over the last year, keep in mind that the total amount you will make on that investment in any given year is based on the amount you have invested. If your debt keeps you from investing for your retirement and future, you need to eliminate it as soon as possible and begin building wealth.

 Would you pay $15 for a movie ticket?  How about $45,000 for a Honda Accord? No? Why not? Well, the main reason is because the going rate of these two items are about 1/2 of the above mentioned prices. Well, if you buy soft drinks or snacks from a vending machine every day, you are paying that kind of markup on the product, approximately 100% (or 2x more). I am guilty of this myself, but not on a daily basis.  But there are people in my office that purchase 2 to 3 soft drinks and 2 to 3 “snacks” daily, spending $2 to $3 dollars daily. Most of this stuff is not that healthy either, but that is for another discussion.

My work has a refrigerator that is bigger than the one in my house, so I could easily buy a 12 pack, purchased at Sam’s or some other wholesale club and put a couple in there every day. I could also buy a large 30 packs of chips, crackers or whatever kind of snacks I happen to like, at a wholesale club, and pay half or even less than I would by visiting the vending machine everyday.  So if I make 4 trips to the vending machine everyday, and spend $2.00, I am now only spending $1.00 without cutting back on anything. $1.00 x 250 working days a year (if you are lucky to get 2 weeks of vacation) =$250.00 year. To earn $250 in interest at 3.5% you would need approximately $7,150.00.
That’s a lot of money needed to cover the cost of the “Convenience Factor”.
 
Vending machines are only one example of the “convenience factor” in our daily lives, such as buying coffee from high-priced places like Starbucks, but the truth of the matter is you don’t have to cut many of these things totally out of your life. Instead, you can frequently  find a way to keep those things in your life at a cheaper price. You don’t have to cut coffee, soft drinks or whatever beverage you enjoy and switch to water from the tap, just try to get what you consume at a cheaper price, as often as possible.

I think one of the reasons we don’t look at some of these items is because they are such small dollar amounts, even as little as $0.50 from a vending machine.  But if you add up multiple small purchases, day in and day out, the savings can and do add up. Consciously examining even the smallest expenditures in your life can result in positive changes to your personal bottom line.

How much is the convenience factor costing you?

What’s the value of a dollar these days? Less than it was a couple of years ago, I imagine.  But what I am talking about here is the value of a dollar not due to inflationary effects, but rather on where that dollar is being utilized– and how much it really costs you. 

Let’s first look at paying off debt. For example, say you have $1.00 in credit card debt at 20% interest.  In order to pay off that debt you have to earn money, pay taxes on your earnings, and then pay off the debt. For the sake of simplicity, let’s say you are taxed at a 20% rate. You will have to earn $1.25 to pay off that $1.00. ($1.25 x 0.8 =$1.00). So to pay off that one dollar now, you have to earn $1.25.  Now suppose you put off paying that $1.00 for one year.  At 20% interest you owe, one year later, $1.20.  But to pay off that $1.20, you will have to earn $1.50 ($1.50 x .8= $1.20) one year from now to pay it off.

Now let’s look at building wealth.  Suppose you put $1.00 into your 401k account.  Since you won’t pay taxes on your contribution, that $1.00 only costs you $0.83 ($0.83  x 1.2 =$1.00) from your take home pay. So if you are building wealth with pre-tax dollars instead of pay off debt with post-tax dollars,  it costs you 66% less to invest $1.00 than to pay $1.00 in debt ($0.83/$1.25 =66%). If you want $1.00 a year from now, it costs you even less, depending on what interest rate you receive over the course of the year. Let’s assume 7%. You only need to decrease your spending by $0.77 now to have $1.00 in one year ($0.77 x 1.2 x 1.07 = $1.00). So creating $1.00 one year in the future only costs you $0.77 now.  If you delay paying off debt in the above example one year, it will cost you $1.50, or almost double what it takes to create $1.00.  If you were to throw in an employer match to your 401k contribution, you are talking about an even larger difference. 

(Now, I know I have not considered taxes when the 401k money comes out sometime in the future, but this example is to illustrate the difference in the price of debt (high) vs. investing, particularly over time. Even if you were to invest in a Roth IRA , to get $1.00 in a year at 7% would cost you $0.93 now, and be tax free, vs. the $1.50 for the $1.00 in debt if you wait a year to pay it off.)

These numbers show how much more it costs you to carry high interest debt and how it can actually cost less (to your take home pay) to invest, and should motivate everyone to pay off debt as quickly as possible, particularly non-deductible, high-interest debt, and begin investing. A great place to start is with pre-tax savings, to minimize the effect on your take home pay, certainly up to the employer match in a 401k if your employer offers one.