Archives for 2011

Is It Bad To Be A Spender?

It can be tempting to lump spenders into the “bad” category. When we talk about money personalities, the spender always comes up. Those who like to spend can be vilified in some circles. Even if it is unintentional, the focus that is so often placed on saving money, cutting spending, and being frugal can really put the pressure on spenders.

But is being a spender really so bad? Since I am, in fact, a spender, I'd like to think that it's not a bad thing at all. Like so many other things, it's in how you do it.

Spending Doesn't Have To Be A Dirty Word

In my mind, having a spender personality isn't a bad thing — unless your love of spending leads you into debt. Additionally, spending doesn't have to mean that you are using the money only for yourself. My husband is a spender as well, and he loves spending on other people. He likes buying gifts for others, and we both feel it is important to give to charity, and to our church.

Even spending on yourself doesn't have to be a bad thing. However, you have to draw the line when it comes to getting into debt to pay for your spending ways. As a college student, I often took my spending too far. I took out student loans — even though I had a full-tuition scholarship and a part-time on-campus job. I also got credit cards, and promptly proceed to max them out. Even though I had a number of advantages that should have made it easy for me to live within my means, I overspent every chance I had. I ended my undergraduate career with a great deal of debt.

I learned my lesson. My spending wasn't a bad thing; spending beyond my means was the problem. Now, I make sure that I live within my means. I have spending priorities, and make sure that I spend on those things first. If I run out of money, the spending stops. As long as my enjoyment of spending doesn't put my finances at risk, I think that my habits can be a way to help others, provide my son with valuable experiences, and help me find a little extra pleasure in life.

Preparing For The Future

Just because your spending is kept within your means, though, it doesn't mean that it's ok to put your future at risk. Before you spend on the “fun” things, it's a good idea to make sure your future is provided for. You should have an emergency fund, and you should be saving for retirement. If you have long-term goals, such as homeownership or sending your child to college, you need to plan for those things as well. You can use your love of spending to direct your resources into specific goals that can provide you with a more secure future.

In the end, being a spender doesn't doom you to a life of financial ruin. As with any other money personality, being a successful spender is about harnessing your impulses and desires so that you can use them to your advantage. Figure out what you want, and create a spending plan that helps you achieve your goals.

10 Regular Expenses That You Should Re-Examine To Find A Better Deal

By Mr. Money 4 Comments

Over the years one of the biggest mistakes that I've made that has cost me hundreds of dollars was becoming passive when it came to some of my regular expenses that I had to pay. There are a lot of regular expenses that we just pay every month without even thinking about it – just because we have always been doing it – or because we've become comfortable with the company we're currently using. Either that or we don't even realize that there is an alternative.

Today I want to look at a few expenses that we don't always revisit or look into saving money on – because we don't realize that we can, or we don't think we'll end up saving much. Not looking into those expenses is a mistake that could cost us hundreds, if not thousands of dollars.

Expenses To Regularly Revisit

Here are a few of the expenses that I've recently revisited and found that I could save a bunch of money.

Homeowners Insurance: I thought that I was getting a pretty decent deal with our homeowner's insurance, but recently we had our rates go up by over $100, when our home value has continued dropping. How is that possible? I'm currently looking into finding a better deal, and I'm confident I can save anywhere from $100-200 a year. If we needed to I'm sure we could reduce the amount of coverage or do other things to save.
Auto Insurance: The last time I switched insurance about 2 years ago I ended up saving a LOT. I saved about $1000/year over what I had been paying – through a family friend. Just goes to show you, trust but verify. I just rechecked our rates last month, and we could save, but only about $20/year – so not really worth it for the hassle.
Health Insurance: You can try finding lower costs on health insurance, and often you may not realize that you can find a better deal by buying your insurance individually. Several folks at our company found that since our company was so unhealthy they were able to find cheaper rates on their own. That wasn't the case for us as we're part of that “unhealthy” group at our company. You can also ask for a discount when paying your hospital bills.
Cable or Satellite TV: The last time we switched from Comcast cable to Dish Network we ended up saving around $20/month, along with getting more channels and Amazon gift cards. Over the year we saved hundreds by switching. When your initial signup deal expires, consider switching.
Cell Phone Bill: Last time we switched cell phone providers we moved from AT&T to a pre-paid plan with Virgin Mobile. We went from paying $40+/month for one cell phone to paying about $15/month for two phones. Since we're not big cell talkers we were able to save a ton of money and get an extra phone!
Internet: I hadn't checked on switching internet providers for a couple of years because in the past we had locked in a pretty decent deal for high speed internet that I wasn't seeing anyone beat. Well apparently things have changed because now we could save anywhere from $10-15/month by switching from our DSL to cable internet. Don't take for granted that you still have the best deal!
Property Taxes: Sometimes we don't realize that we can ask for a better deal on something we HAVE to pay – like property taxes. If your home's value has changed or is wrong on the government records, you may be able to appeal and save on your property taxes. Look to your county tax assessor or auditor's office for details on how to appeal your property taxes.
Mortgage: One thing that may have changed in the past few years due to the economic slowdown – is the rate you can find on a refinance for your mortgage. We refinanced last year and found that we could save almost $200/month on our mortgage for about $2000 in closing costs. The closing costs were paid back after just over one year, and now we're saving every month.
PMI: Are you paying PMI on your mortgage, but have since reached 80/20 loan to value ratio? If so, ask to have the PMI removed!
Life Insurance: If you've significantly improved your health, quit smoking or lost a bunch of weight, you may want to look into your insurance again and getting a reduction. I may be doing this once I'm done losing weight.

Last time we revisited all of these costs we ended up saving thousands of dollars a year. What could you do with a few thousand dollars extra? I know we could certainly use it.

Are there other expenses that you would suggest that people re-examine every so often? Tell us what they are in the comments. Also – how much did you save last time you re-examined regular expenses?

Finding And Buying Affordable Term Life Insurance Should Be A Priority

By Mr. Money 3 Comments

When I was following Dave Ramsey's 7 Baby Steps a year or two back (I suppose we still are), I was convinced that I needed to buy a term life insurance policy. They give some very vivid stories in their Financial Peace University class from some folks who were in Dave's class who bought life insurance, only to find out months or years later that they had terminal cancer or some other illness. I knew it was a good idea that I buy life insurance to protect my family as well in case of a life changing event, but I had just never followed through.

When we had our son last summer I knew I had put it off long enough, and that it was time for me to take action and buy a policy. I didn't want my wife to have to muddle through without me in case I were to die, I wanted her and my son to be taken care of, with enough money to live on comfortably if I were to pass.

When Should A Person Buy Life Insurance?

There are several frames of reference when it comes to buying life insurance.

There are those that say that y0u should buy it when you're young, because that way you can ensure that you get the best rates because you're young and healthy. They say you should buy it even before you have children or a spouse because you never know when you'll have a health event or health issue crop up that could keep you from getting affordable Term Life Insurance.

Then there are those that say you should buy life insurance only when you need to because you've got dependents, and folks who are relying on you to provide for them. Buying before then is just a waste of money.

I used to come down in the second camp, but I've been swayed to the first camp (buying early) for a couple of reasons. First, you can buy an extremely good policy when you're young at an extremely reasonable cost. For example, i got a $500,000 term life insurance policy for about $30/month. I probably could have gotten an even cheaper policy if it weren't for my weight being a bit high at the time (I'm currently working on that). Also – my wife had a health event in 2008 that made me realize that you really do never know when you're going to need insurance because negative health events can pop up at any time.

How Much Should Your Policy Be For?

Before you buy your policy one thing you need to decide on is how much your policy will be for. Most experts I've read will recommend something in the range of 8-10 times your annual salary. So, for example, if you're making $50,000/year, you would want to get a policy in the range of $400,000-500,000.

Some more conservative experts will recommend even more than that saying that you should have somewhere in the range of 17-20 times your annual salary. For a $50,000 salary that would come to around $850,000-1,000,000 for the policy.

No matter what you do, do your research before you buy, reading up on the different types of policies, and where to buy through educational resources like AARP.org.

Save On Your Insurance By Paying For Your Policy Quarterly Or Yearly

One thing to consider when buying your policy is whether you can save money by paying for your policy in quarterly or yearly installments. A lot of companies will give you a pretty decent discount if you pay up front for the entire year.

The only reason why I might not do this is because – as some experts point out – if you pre-pay for your year's policy and then die part way through the year, you won't be getting back your dues for those final months. You've pre-paid. Granted it may only be a couple hundred bucks, but still.

In any event – always make sure that you set up automatic payments for your life insurance, and that you never let it lapse. You don't want to have someone die, and then figure out that the policy lapsed because payments hadn't been made for a couple of months.

Conclusion

We bought term life insurance last year as insurance against my untimely demise. I don't my wife to have to worry about having to pay the bills in case I were to die. I bought my policy while I was still relatively young and in good health – so my policy is pretty cheap, and if you do the same yours will probably be as well. I'd recommend you buy your policy ASAP as well, because we never know when we might get sick, have a negative health event or, God forbid, die.

Do you have a life insurance policy? Why or why not?

How We Blew Our Baby Budget, And How You Can Avoid Our Mistakes

By Mr. Money 4 Comments

Last June 30th our son Carter was born. He weighed in at 8 pounds even and was 21 inches in length. Since then he has grown rapidly, to the point where is now somewhere around 20 lbs, and his height is in the 95th percentile. He's got two parents who are either near or over 6 feet tall, so we have a feeling he's going to be tall as well. In the past couple of months he's started crawling and standing on his own, and we're sure the walking part is just days away.

Have a child at the house has been an amazing event in our lives, and we both feel very blessed that our little boy has been healthy thus far. But while life with Carter has been a lot of fun, it hasn't all been rainbows and unicorns. There have been new expenses cropping up all the time, along with the reduced income as my wife quit her job to stay home with our son. We've found that certain areas were more expensive than we expected, while others weren't as bad as we thought.

Today I thought I'd do a quick look at some areas that we found that we spent more than we had expected, as well as talking about how you can avoid having your own expenses get too far out of control.

Baby Expenses That Were Higher Than We Expected

When we found out that we were expecting, I started researching how much we could expect to spend on our new baby. Here are some of the expenses we expected, that ended up being higher than we thought.

Furniture and accessories for the baby: Over the past year this is probably one of our highest spending categories for the baby. I originally thought that we could get away with spending a minimal amount on baby furniture, but in the end we ended up paying for things like a crib, changing table, dressers and bookshelves, a rocking chair, baby chairs, Johnny Jump-Up and more. On top of that a lot of that furniture came with accessories, like sheets, pads, rail guards, safety bumpers and a thousand other little gadgets. All in all we've probably spent somewhere in the range of $1500-2000 or more on these things (probably more). How can you get away with not spending as much? Buy your furniture used, or get it from a secondhand store. It'll be just about as good. Don't buy all the accessories for every piece of furniture that you buy because it's just not necessary. Don't fall prey to the appeals that many companies use that make you think that if you don't buy their gadget or product that your child won't be safe or happy. They will be fine.
Clothes for the baby: When we had our baby showers we got a ton of baby clothing that ranged anywhere from 0-3 months, all the way up to 18-24 months. Because we had received so much clothing I underestimated just how much more clothing we would need. Part of the problem is that the child grows so fast that they grow out of clothes before they've even had a chance to wear them. The other thing I underestimated was my wife's need to buy all sorts of “cute baby clothes” for our son. She would see something she thought was cute and then buy it. I can't tell you how many pieces of clothing he never even wore because he just grew so fast. We did have a budget meeting about that one to cut this category down a bit. How can you get away with not spending as much? Try to buy your baby's clothes at a secondhand store. Most of the clothes there are very lightly used anyway, much of it is brand new with tags still attached. Also try to ask for a wide variety of age range clothes at the baby shower. A lot of people want to buy cute clothes for newborns, when in fact that baby will only be that size for a very short time.
Toys: We got quite a few toys for the baby via the baby showers, but once again both mommy and daddy went a little crazy on the toy front. First child and all. We have had to cut back on how much we're spending here because we spent way too much. Funny thing is, our son actually prefers playing with things we already had – like paper, and candy wrappers and the dog. Go figure. How can you get away with not spending as much? Simple, just don't buy as many toys for your kids, especially when they're younger. They won't be able to appreciate them anyway, they're more for you as an adult! If you do buy toys, find gently used ones at secondhand stores or thrift stores. Buy fewer toys, and rotate them. As the child tires of one toy, rotate in the other one. Fewer toys, but more fun!
Increased medical costs: We're the prototypical first time parents, always getting worried about every little noise Carter made, every little wheeze or sneeze. We've taken him in to the doctor many times in the last year. Some of those times it was a good thing because he had ear infections or other infections. Other times it was just a little runny nose. When you're going so often, however, the co-pays add up. Over the past year we've spent more than we budgeted for on medical care. It's too bad, I could have added more to my flexible spending account! How can you get away with not spending as much? This is one area that you may not want to skimp on. Things we could possibly have done better to save a little money are some of those visits to the doctor when even the smallest little thing cropped up. A little bit of a runny nose may not be that big of a deal. On the other hand, if we hadn't been careful we could have missed those ear infections that our son had, which could have lead to big problems. One of my wife's cousins had a baby last year as well, and had a burst ear-drum due to an ear infection. Moral of the story, be careful about your kid's health care, but use your judgement in taking them in.
Babyproofing costs: Another area where we probably spent more than we needed to was in babyproofing the house. My wife is big on making sure our son is safe, and while I agree with that sentiment, I'm not as extreme when it comes to padding every surface, locking down every shelf, putting gates around every corner and putting child-proof knobs on every door. How can you get away with not spending as much? I think that there is a line when safety becomes overkill. For example, do you need to pad the corners of a table that is higher than the child can reach? No. Do you need to lock cabinets higher than the child can reach? No. The key here is to provide for your child's safety, while still allowing for common sense. You can't protect your child against everything, and they have to learn the consequences of their actions at some point right? Cover the most apparent dangers where you can, but don't go overboard.

So those are a few areas where we spent more than we had intended, and how you can attempt to avoid the same mistakes.

What areas did you overspend with for your children? What expenses do you think can be avoided? Tell us about your baby expenses and where you overspent in the comments.

What Are Required Minimum Distributions?

By Miranda Marquit 4 Comments

One of the realities of tax-deferred retirement accounts is the required minimum distribution (RMD). The RMD is the amount that you have to withdraw from your tax-deferred traditional IRA, 401k or other account each year. Your RMD is figured based on the balance in your IRA at the end of the previous year. If you don't take your RMD as required, you will be penalized. It is important to remember that your RMD will be added to your income, and taxed at your marginal tax rate.

Taking Your RMDs

When you start taking RMDs is based on when you turn 70 1/2. You have to take your first RMD by April 1 of the year after you reach 70 1/2. If you were to turn 70 1/2 this year, you have until April 1, 2012 to take your first RMD (this will count as your 2011 RMD, and be based on your retirement account balance at the end of 2010). However, you should realize that you will need to plan for the fact that after you take your first RMD, you will need to take another RMD by December 31, 2012 (this will be your 2012 RMD, and be based on the amount of money in your retirement account at the end of 2011). Technically, you are getting extra time to take that first RMD. If you want to avoid a big tax whammy for 2012, you can take your first RMD before the April 1, 2012 deadline, and take it during this year.

Understand that you will have to take separate distributions for different retirement plans. Your distribution from a 401k will be different from the RMD taken from your IRAs. Your tax-deferred IRAs, including SIMPLE, traditional and SEP will all be added into a total for RMD purposes. It is worth noting that the Roth IRA does not come with a required minimum distribution requirement. When you go to figure out how much to take as a RMD, you will need to consult with the Uniform Lifetime Table found in Publication 590 on www.irs.gov. If you are turning 71 in 2011, and you plan to make a RMD, you will go to the table and look at the distribution period. In this case, it is 26.5. You divide the amount in your retirement account by the distribution period. If you have $800,000 in your combined IRAs, then your RMD would be $30,189 (rounded to the nearest dollar).

If you don't take the RMD amount required, you have to pay half the shortfall as a penalty. So, if you only take $20,000 out, you will have to pay a penalty of $15,095. That's a pretty big chunk of change. This is why it's important to pay attention to your RMDs.

Reducing The Tax Bite

Depending on how much income you have during retirement, that $30,189 could really be a problem — it might even bump you up a tax bracket. And, if you decide to wait to take your first RMD until the April 1 of the following year, your AGI would jump by more than $60,000 that year. You can see why taking the RMD a little bit earlier, rather than waiting until you have to take it, might be a desirable option. Here are some other ideas for reducing your tax liability:

Begin before 70 1/2: You can withdraw money, penalty free, from your retirement account after age 59 1/2. Start drawing down your account then. You'll not have as big an increase to your AGI, and you can reduce your IRA balance before you start taking RMDs.
Extend your working life: As long as you don't own more than 5% of a company, you can delay your RMDs for as long as you keep working, even if you are 70 1/2.
Consider your spouse: If you have a spouse more than 10 years your junior, and the spouse is your only beneficiary on the account, it is possible to use the Joint Life table, or the Last Survivor Expectancy table, to figure your RMD. That should lower the number a bit.
Convert to a Roth: You can convert to a Roth IRA from a traditional IRA if you want to avoid RMDs. But that means paying income tax on the money you convert. You will have to run the numbers to see when it makes more sense to pay the tax.

Thank You To Those Who Have Given Their Lives On This Memorial Day

By Mr. Money Leave a Comment

Memorial day has always been one of those strange days for me. One where I'm filled with gratitude for the sacrifice that our fighting men and women have made, but at the same time the day is tinged with sadness. It's sad that they had to give their lives, or make such sacrifices – and that there is such evil in the world that requires their sacrifice be made.

My grandfather was in the US Army Air Corps in World War II, and while he wasn't killed in action, he was shot down and served several years in a German POW camp. I'm sure he was changed by the experienced, but he never let on very much to his grandchildren about all he had been through. I'm sad that I didn't get more of an understanding of his experiences as he went home to be with the Lord in his sixties, far too young.

So today, I'm thankful for his sacrifice, as well as the sacrifice of all the thousands of other fighting men and women who have given their lives in support of freedom. Thank God for them.

Memorial Day

Memorial Day has it's history dating back to the Civil War according to Wikipedia:

Memorial Day is a United States federal holiday observed on the last Monday of May. Formerly known as Decoration Day, it commemorates U.S. Service Members who died while in the military service.[1] First enacted by an organization of Union veterans — the Grand Army of the Republic (GAR)— to honor Union soldiers of the American Civil War. It was extended after World War I to honor Americans who have died in all wars.

Memorial Day often marks the start of the summer vacation season, and Labor Day its end.

Begun as a ritual of remembrance and reconciliation after the Civil War, by the early 20th century, Memorial Day was an occasion for more general expressions of memory, as ordinary people visited the graves of their deceased relatives, whether they had served in the military or not.

So thank you to all those who have given their lives in the service of our country, and for those who served, and who have passed before their time. We will not forget you, and we honor your sacrifice.

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