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Women and Financial Security
The Dollar Stretcher
by Gary Foreman

A recent article in the online version of the Wall Street Journal caught my attention. It was called “Clients From Venus.”

It began by pointing out that women are becoming increasingly involved in personal finance. “Women control $8 trillion in assets in the U.S., and by 2020 are expected to control $22 trillion, according to TD Ameritrade Institutional, a division of TD Ameritrade Inc.”

Naturally the financial services industry is trying to figure out how to capture their share of this market. And as part of that attempt they’ll study women to try to find out what works for them.

The same WSJ article provides an interesting glimpse on how women relate to money and personal finance. “A 2010 Boston Consulting Group study found that women globally identified financial services as the industry they are most dissatisfied with on a service and product level. Those surveyed said the industry doesn’t understand that women view money and wealth differently from men. For example, women don’t seek to accumulate money, the study reported, but see it as a way to care for their families, improve their lives and find security.”

As someone who has worked in the area of personal finance for decades I can verify that women do look at money differently than men. And that there are some tools that can make it easier for women to manage their financial affairs. So let’s look at some of those tools.

Begin by selecting your goals. For most of us this is easy. Providing for our ongoing monthly needs. Saving for a vacation, car, house or baby. Saving for a college education. Saving for retirement. Some are short-term. Others may be decades away.

But, they all have something in common. You can estimate how much money you’ll need and when you’ll need it. So you have a goal and you know how much time you have to achieve it.

There are a wide variety of online calculators to help you figure out how much money you’ll need and how much you’ll have to save to get there. Some of my favorites come from Bankrate.com/dls. They’ve been an unbiased research source for decades.

Why is it important to start with goals? Let’s state up front that not all women are the same. But, for many the study is right. Finances are about security. That means that the recognition of goals is especially important for them. Picturing their baby getting a diploma is the kind of motivation that will cause them to take the necessary steps to make it happen.

Working as a financial planner back in the 1980s I noticed that on average women weren’t much interested in the beating the market or having water cooler bragging rights for their latest stock pick. What women wanted was evidence that they and their families were financially secure (or at least becoming financially secure).

That meant that their investment style was different from men. Guys were much more willing to be aggressive. More willing to take risks if the possible rewards were big enough.

Women were much more likely to choose a slow but steady path. They were happy playing tortoise to the men’s hare. In fact, more than once I heard a wife suggest her husband’s investment ideas were ‘hare brained’!

As a financial planner I was always more comfortable with the ladies’ approach. There are fewer surprises and disappointments on the slow but sure road. To that extent I often encouraged them to use a strategy that’s commonly known as ‘asset allocation management.’ When used with mutual funds it becomes a two layer diversification strategy.

The concept of diversification is important to successful wealth accumulation. Diversification is a way of saying that all your investments are not the same. They’re diverse or different. The fact that they’re different is the key. Because they’re different they won’t go up or down together.

If you were a stock investor you might own ten different stocks. If one stock ran into trouble, the other nine would cushion the loss. One way to easily achieve diversification among stocks is to invest in a mutual fund that holds many stocks. So-called index funds are an excellent example.

Now while a fund protects you from one stock performing badly, what heppens when the whole stock market collapses? Something that we’ve seen twice in the last 15 years. In that case a stock mutual fund would drop.

That’s where the second level of diversification comes in. The asset allocation model. Different types of investments respond differently to changes in the economy. For instance, inflation is bad for cash and bonds. But it’s good for hard assets like real estate and metals.

By diversifying your investments in different types you protect yourself from surprises. An example was the stock market crash of 1987. At the time I was a financial planner. Asset allocation protected clients throughout that turbulent year. While one type of mutual fund went down, another went up to offset the loss.

We don’t have space here to get into how to allocate between different asset classes. The Securities and Exchange Commission (SEC) has a pretty good explanation here.

You’ll want to adjust your allocation as your age and goals change. Economic situations can also be a reason to tweak the allocation.

The approach is cautious, but one that works well. Especially over a number of years and in uncertain economic times.

Bottom line? Part of sound personal finance is understanding how you relate to money. And then tailoring a plan that works with your personality and the uncertainties of the world we live in.

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Gary Foreman is a former financial planner who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on personal financial management. Source: Women and Financial Security

Articles on www.debtplan.org have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice

Millennials and Social Security
The Dollar Stretcher
by Gary Foreman

Let me start with a confession. I’m not a millennial. I’m a baby boomer. Been working since I was 15. For over 40 years I’ve been paying into Social Security. In return for my hard-earned money I’ve received promises about future payments. And, I’m not alone. The Population Reference Bureau says that there are 76 million of us boomers.

What does that have to do with Millennials? We all know (or at least should know) that Social Security is running out of money. Recently Reuters did an interview with the chief actuary of the Social Security Administration. They reported:
“Social Security is not in imminent danger of running out of money, but it faces a financial crunch a bit further out – around 2035. That is when Social Security’s Trust Fund is projected to be exhausted due to the drawdown of benefits by the baby boom generation. At that point, the program would have sufficient tax revenue to pay only about 76 percent of promised benefits.”
Clearly something will need to be done. There are only three ways to close that gap:
- cut benefits that were promised to seniors
- increase social security taxes on younger workers
- shift funding (and the problem) to the general U.S. budget (which will lead to deficit spending and inflation)

I’ll leave it up to you whether you should contact the President, your senators or representatives and suggest that they work on a solution now. But, given the fact that they’ve taken the opposite approach and lowered FICA rates lately to reduce the pain of a bad economy, it’s probably safe to assume that they won’t take any action in the near term that would close the gap between promises and expected revenues.

So what can a millennial do today to avoid trouble later? There are a number of things that you can do to put yourself in a better financial position for your future.

First, save as much as you can today. Don’t assume that it’ll be easier to save ten years from now when you’re making more money. It tax rates go up that might not be true. Or if inflation is consuming your paycheck it will be harder to save.

So save all you can today. Aim to save at least 10% of your take-home pay. Better still 15%. Not only will you be establishing the savings habit early, you’ll also have the magic of compound interest working in your favor. A dollar saved today is worth about twice as much as one saved 10 years from now.

Then guard your savings carefully. There are two major threats to your savings: taxes and inflation. Let’s look at each one separately.

First, taxes. Taxes can play a major role in the performance of any long term savings plan. The reason is simple. Taxes slow down the benefits of compound interest.

Let’s take an example. Let’s suppose that your money is earning a steady 8% per year. At that rate it will double every 9 years. Pretend you’re 23 years old today and received $1 as a birthday present. You save it for retirement. That $1 will double when you’re 32 ($2). Again when you’re 41 ($4). Again when you’re 50 ($8). Again when you’re 59 ($16). Again when you’re 66 ($32). And again when you’re 75 ($64).

Now let’s suppose that taxes take 25% of your earnings each year. So your $1 birthday gift only earns 6% each year. Now it will double every 12 years. So it will double when you’re 35 ($2). And double again when you’re 47 ($4). And again when you’re 59 ($8). And again when you’re 71 ($16).

So avoiding those taxes are critical. There are two ways to do that. The obvious is to make your investments within a retirement account like an IRA or 401k plan. As long as your money stays within the plan it grows without taxes.

Another way to avoid taxes is to buy and hold investments that don’t pay interest or dividends, but increase in value over time. Income and dividends are taxed as ordinary income. But an increase in value is considered a capital gain and taxed at a lower rate (assuming that Congress doesn’t raise the capital gains rate). Plus, the gains are only taxed at the time you sell the investment, not each year as it appreciates.

The second main threat to your savings is inflation. And, there’s good reason to think that we’ll see more inflation in the future. In part because of government deficits. Inflation allows a borrower to repay a debt with dollars that are worth less. And, government has the ability to print dollars that cause inflation. So you don’t have to be a conspiracy nut to think that there’s a good chance that we’ll see some inflation fairly soon.

If you’re working inflation isn’t so bad. Prices go up. Your wages go up. No harm done. But, if you’re a saver that’s different. Inflation is like a tax on savings. Every rise in prices means that your savings buy less.

What can you do to be prepared for inflation? Mainly be sure that some of your savings are invested in things that will appreciate if inflation occurs. Typically physical things like gold, silver, real estate.

Consider something called an “asset allocation model” when you invest your savings. It’s a balanced approach. The design is such that if economic events are bad for one type of invesment they’re also good for a different type. So you don’t hit home runs, but you don’t strike out either. Long-term it’s the safest way to invest.

We don’t have the time or space to suggest individual investments. Plan on doing some online studying or contact an investment professional for help in deciding where to stash your savings.

Bottom line? There’s a financial crunch ahead. Both boomers and millennials would be wise to start taking action now. Waiting could mean a very rough time in just a few years.

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Gary Foreman is a former financial planner who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . Find out 6 Squirrely Ways to Save. Source: Millennials and Social Security

Articles on www.debtplan.org have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice

Writing a Will
The Dollar Stretcher
by Gary Foreman

It’s a subject that none of us want to think about. Whether we’re young and just starting life or older and approaching the end, we don’t want to think about our own death. And, adding money to the mix only makes it worse.

But, the truth is that all adults need to think about what will happen to their financial affairs when they die. Failure to do so could leave a real mess for those who survive you. And could cost those survivors quite a bit of money.

So let’s do something today that we don’t want to do. Let’s evaluate your estate planning and see if it’s adequate for the job. For the record, I am not an attorney and this is not meant to be legal advice. I have been a financial planner and often referred clients to get competant legal advice. This is meant to do the same.

First, let’s create working definitions for a couple of commonly used terms. “Estate” refers to what financial and physical assets that you own (or partially own) at the time of your death. “Estate planning” is the planning that you do before your death to make sure that your wishes are followed after death. A “will” is the most commonly used document to make your wishes known to those who survive you and any appropriate government authorities.

We’ll begin with estate planning. You’ll need to decide what you want your estate plan to do. Someone will need to be named the “executor” or boss of your estate. They’ll assume the responsibility of executing your last wishes. That person does not need to be a lawyer. Any adult with good judgement will do. Often a family member is chosen. But, you may want someone from outside the family like a lawyer or bank to do the job.

You’ll want something that will provide instructions on how to distribute your financial assets and physical property. You may want specific items to go to designated persons. Or you may want to make it clear that certain persons are to be excluded from any inheritance.

If you have children you’ll want to specify who you want to raise your kids. Remember that they’ll need someone to take care of them both physically and to manage their finances until they reach adulthood. Quite often minor children are left financial assets in a parent’s estate.

You’ll also want to consider whether any estate taxes could apply. If so, you may be able to take steps to reduce the tax burden your heirs will face.

OK, now that we’ve spent some time thinking about what we want to happen after we’re gone, let’s talk about how we make sure that it does happen.

In most cases the primary document is a ‘will’ or ‘last will and testament.’ A will is a very specific document. It’s not a list of items with names next to them that you keep in your safe deposit box. Or post it notes pasted on a silver tea service that you want to go to little Sally.

A will is a legal document that contains certain elements that are required by state law. While none of these elements are difficult, failure to include them could invalidate the will. And, to complicate matters, each state has slightly different requirements. Make sure that your will is legal in your state of residence. And, have it rechecked if you’ve moved to a new state since it was written.

Many single adults think that they don’t need a will. Typically they’re wrong. Without a will it take could months to have someone assigned to sell a car owned by the deceased or pay any bills. There could even be a problem finding someone to pay funeral expenses.

Another common misconception is that married couples can solve the problem by putting everything into joint accounts. Unfortunately not everything can be titled jointly (think of jewelry or home electronics). And, even if everything is held jointly, what happens if both spouses go in a joint accident?

Dying without a will can leave a real mess. State law will determine who is the executor and how your property will be distributed. That might not produce the results you want. For instance, in some cases law dictates that some inheritance goes to children before the surviving spouse.

It’s especially important for unmarried couples. State laws are a patchwork. In some places they recognize commonlaw marriage the same as one registered with the state. In other places, a life-long live-in partner is accorded no more rights that a complete stranger.

State laws are also problematic for couples in a second marriage. You may think that certain assets that you brought into a second marriage should go to the children of your first marriage. The state might think otherwise.

Bottom line? Just about everyone who has reached adulthood should have a will.

Being frugal it’s tempting to want to write your own will or buy a form where you just fill in the blanks. Normally I encourage do-it-yourself efforts. But in this case that could be a mistake. Remember that if something isn’t done right no one will know until after you’re gone and can’t correct it. A small mistake could be very costly. This might be one of those cases where hiring a professional is good money management.

That doesn’t mean that you can’t shop around to save some money. And, if you’ve already thought about what you want your estate plan to accomplish you’ll reduce the number of hours the attorney will spend preparing your will. That will save you some money.

Finally, you’ll want to make sure that your executor has access to a copy of your will when you die. They will need it as proof that they can make decisions for you. Give them have a copy of the will, or, if you’d prefer that they not see it, give a copy to your lawyer and let the executor know who the lawyer is. Don’t put the only copy in your bank box. The bank will not let the executor enter just because they say they have a right. The bank will require proof. And that proof is locked in your box.

Planning for your estate does not need to be expensive. Unless your financial or personal affairs are complicated getting the documents prepared isn’t that expensive. But, it is important. Don’t leave a financial mess as a last memory of you for your loved ones.

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Gary Foreman is a former financial planner who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on estate planning in a second marriage. Source: Writing a Will

Articles on www.debtplan.org have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice

What To Do Before Gas Hits $5 a Gallon
The Dollar Stretcher
by Gary Foreman
gary @stretcher.com

Whether you’re driving a hybrid compact or a SUV, most drivers are feeling the pain of higher gas prices. We won’t get into the causes or the politics of gasoline prices. That’s for economists, politicians and pundits.

But when Time magazineand the NY Timessuggest $5 gas is possible we will recognize that it could happen.

So is there anything that you can do besides waiting for the price to increase and then try to minimize the pain? I think so. There are steps that you can take today that will minimize the impact of higher gas prices.

First, if you haven’t already, begin to take all the normal gas saving steps. Pump up your tires. Shop for the cheapest price. Change your air filter regularly. Don’t drive aggressively. All the usual stuff.

Then go a step further. Consider ways to reduce the miles you drive and how much time you spend in your car.

Presumably you’re already combining errands to reduce your miles. It may be time to seriously consider carpooling. Gas costs twice what it did just a short time ago. If you can alternate days with a co-worker your gas bill will look more like the old days.

Also check with your employer about working four 10 hour days or working from home one day a week. With all the connectivity, you might convince your boss that you’d be more productive without all the office distractions.

Another way to lower your gas bill is to reduce the amount of time you spend driving. Sitting in rush hour traffic burns gas. See if you can shift to a schedule that puts you on the road when there’s less traffic. Better 10 to 7 than 8 to 5.

If your employer won’t allow that, adjust your personal schedule to avoid rush hour. Nothing says that you have to have breakfast at home before heading into work. You could bring breakfast with you and eat at the office after beating the traffic.

Same thing at the end of the day. You don’t have to go home right after work. Perhaps now is the time to get in the habit of taking a daily walk while traffic is heavy and then driving home after the rush.

Finally you come to a point where you’ve saved as much gas as you can. You might already be there. But that doesn’t mean that there’s nothing else you can do.

The reason we’re concerned about higher gas prices is because it causes us a money problem. So let’s not ignore the potential money solutions.

Adjust your budget now. You know how much you spend now for gas each month. Add 25% to it. Figure out today where in your budget that extra 25% will come from. Better yet, start taking it out of the other categories now. Put it in a savings account to help you weather the storm.

Finding that much to cut in your budget could be tough. Especially with grocery prices also rising. But it won’t get any easier if you wait until gas prices do go up. In fact, it will be even harder because you’ll need to make a quick decision.

You might be fortunate and find some money by checking your home or auto insurance policies. But you might need to gut it out and finally give up on the premium cable channel or find that extra source of income. No matter what, it will be easier to make the changes now.

I understand that it’s tempting to sit back and let things happen. Hope that prices don’t go up any further. Who knows. Maybe they won’t.

What happens if the experts are wrong and gas doesn’t go to $5? Well, you’ve tuned up your car, cut your gas bill and saved some money in the process. Not a bad result.

Keep on Stretching those Gasoline Dollars!
Gary

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Gary Foreman is a former purchasing manager who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on how to tame a gas guzzler. Source: What To Do Before Gas Hits $5

Articles on www.debtplan.org have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice

Will Baby Boomers Have Enough to Retire?
The Dollar Stretcher
by Gary Foreman
gary @stretcher.com

It’s no secret that the housing bubble and recession of the last four years has caused financial heartache for many of us. One group that has been especially hard hit is the baby boomer generation.

For years boomers have believed that they would retire in their mid-sixties and enjoy their golden years playing golf and traveling. They planned to fund retirement with a paid-off home that kept increasing in value, private savings via 401k and IRAs, and Social Security for which they had been contributing since their teens.

The burst of the housing bubble buried the first assumption. In many areas home values have dropped by 30 to 40% since 2008.Since the 3rd quarter of 2007, prices have continued to fallFor boomers, that’s been a huge hit on their net worth.

Many retirement plans have also taken a hit. Depending on where the funds were invested many have seen their account balances drop to levels not seen since the 90′s. Those who have studied the issue say that these accounts won’t be able to provide enough retirement income.

“The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse.”

“The median 401(k) plan held $149,400, including plans from previous jobs, according to the Center for Retirement Research. To figure the annual income from that, analysts typically look at what the family would get from a fixed annuity. That $149,400 would generate just $9,073 a year for a couple, according to New York Life Insurance Co., the leading provider of such annuities- less than one-quarter of the $39,465 needed. Just 8% of households approaching retirement have the $636,673 or more in their 401(k)s that would be needed to generate $39,465 a year.”

The final source of retirement income for boomers was to be Social Security. But as of 2010 the trust fund was actually paying out more than it was taking in. And the trustees expect the fund to be exhausted in 25 years. “In the 2011 Annual Report to Congress, the Trustees announced: The projected point at which the combined Trust Funds will be exhausted comes in 2036 — one year sooner than projected last year. At that time, there will be sufficient non-interest income coming in to pay about 77 percent of scheduled benefits.”

So what’s a baby boomer to do? Now is the time to take a good hard look at your retirement plans and how realistic they are. For most boomers, those golden years are quickly approaching. You can’t pretend that they’re somewhere in the distant future.

You should see a professional to work through all the math and different options. Much will depend on some of the estimates that you make regarding how much income you’ll need, how your investments will perform and what inflation will be.

You can get a rough estimate on your own. Begin by estimating how much income you’ll need. Traditionally workers were told that they’d need about 80% of their preretirement income after retirement. But your retirement lifestyle may mean you need much more or much less income. One way to estimate you needs is to start with your current expenses. Then subtract expenses that will disappear if you retire (2nd car, work clothes, continuing education, etc.). Then add any new expenses that would begin at retirement (extra travel to visit the grandkids, a hobby that you’ll finally have time for, etc).

Adjust your estimate for inflation. Suppose you felt you’d need $50k per year in today’s dollars, but you won’t be retiring for 12 years. If inflation were 6% prices would double in 12 years, so you’d really need $100k. If inflation were 3% you’d need $75k.

Next you’ll need to estimate how much savings you’d need to create your target income. For illustration let’s pick a nice round number and assume that you’ll want $100k per year. Next, you’ll need to assume how much your investments will each each year. For our illustration let’s say 8% per year. Then divide your desired income by the investment earning percent. In this case that would be $100k divided by 8% or $1,250k (one million, two hundred fifty thousand dollars).

Again, this is just a very rough calculation and depends in large part upon the assumptions you made. But, the point is simple. Unless you’ve saved more than most of your peers, you’re probably short of what you need for retirement.

That means that you need to adjust your plans. Either as to how much income you’ll have available, when you can retire or whether you’ll even need to work part-time through your retirement years.

The calculation here wasn’t meant to give you a definitive answer. That’s not possible in a short article. Rather it was to demonstrate how important this information is and to encourage you to meet with a professional.

Unless you have already gotten professional help, you’d be wise to consult someone who can help them work through the various scenerios and assumptions. This is not the kind of thing that you want to get wrong. A mistake could mean that you run out of money sometime in your 70′s or 80′s.

Boomers are running out of time to get this done. We’re quickly heading into a different stage of life. It’s the wise person who anticipates that change and plans to make the most of it.

Keep on Stretching those Retirement Dollars!
Gary

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Gary Foreman is a former purchasing manager who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on how much retirement income you’ll need.

Articles on www.debtplan.org have been acquired from a variety of sources. No content on this site should be considered financial or legal advice

The Dollar Stretcher
by Gary Foreman
gary @stretcher.com

Recently I’ve had a number of conversations about how the economy of the last four years has changed the way that many people think about money.

Historically, in the 60′s and 70′s our personal savings rate had been in the 7% plus range. Gradually it descended all the way down to about 2% by 2007. It rebounded sharply to the 5% range when the recession started. (St. Louis Federal Reserve http://research.stlouisfed.org/fred2/series/PSAVERT )

Or consider credit card debt. The total amount owed grew until 2007. For years in a steady upward trend. But credit card debt shrank 9% in 2009 and another 7% in 2010.

But a curious thing happened in 2011. By mid-yesr people began taking on as much debt as they were repaying. And in the 4th quarter they actually increased the amount that they owed on the credit cards. (Federal Reserve http://www.federalreserve.gov/releases/G19/Current/ )

With that in mind, I’ve been wondering if the newly adopted frugal ways will disappear when consumers either feel more comfortable about their income or just get tired of stretching a dollar (aka “frugal fatigue”).

One expert I sought out to discuss the issue was Guy Hatcher. He’s a CFP(r) and the founder of Advanced Planning, Inc.. He’s been in the financial planning business since 1987. That experience allows him a longer perspective that includes past recessions and what we learned from them. What follows is a series of questions I asked Guy and his responses.

Gary – I’ve heard you believe that the recession has changed people’s financial goals. Could you explain for us?

Guy – Along with the economic challenges we have all faced and the constraints of extra cash flow – not only from a government standpoint, but also each of us as individuals, the majority of consumers have had to make some serious financial choices. In our customer base, we’re having conversations about down-sizing – both in material and tangible purchases as well future expectations. Their goal is to increase their quality of life by eliminating a lot of the associated financial stress in trying to maintain higher expectations. Many have concluded that bigger, especially in regards to an increased quality of life, is not always better.

Gary – How can people make sure their financial goals don’t conflict with other goals?

Guy – Typically, people’s goals are tied directly to their finances. The type of house, car and vacation they go on this year are all types of goals tied directly to their finances. Even a new diet or exercise program will typically include some type of extra expense that people are now looking at more carefully. Prior to these economic challenges, it seemed more prevalent to base personal worth on a scorecard of “money.” But this recession has thrown away that scorecard for many families, and they are now focusing more on life improvement goals like spending more time around the dinner table with the family, increasing community involvement, and strengthening their relationships with their family and friends. People have redefined what is truly important to them, and in doing so, their financial goals are better aligned with their personal and family goals.

Gary – What positive lifestyle changes have you seen?

Guy – Again, using my customer base as a sounding board, people are downsizing their homes, reducing debt, using their credit cards less and less, and have less expendable debt. They prioritize sharing an experience together over independent and extra-curricular spending. Many have even renewed their faith and have increased their church involvement as a family.

Gary – Do you think that the lifestyle changes will remain if the economy gets better again? Or will people revert to their old ways?

Guy – The ’08 financial crisis shook our foundational belief in the efficiency and financial security of our government. The average consumer is now aware of the instability of not only our local economies, but also the governmental systems here and across our borders. What is it that we don’t really know, what has yet to be revealed about our local and world economy? I believe it is this kind of insecurity that will help to keep people’s personal financial situations in check for the future, especially for the current generation going through it; much like the generations of the Great Depression.

Guy makes a good case for consumers staying more cautious about their finances. Back in the 1980′s as a financial planner serving retirees I saw it firsthand. People who grew up during the depression were well aware that markets collapse and nothing financial is ever really guaranteed.

But, their are others who point to the 4th quarter spending statistics and suggest that consumers will bounce back just like they have in previous recessions.

Why is that important to you? Perhaps what everyone else does isn’t important. But what you choose to do is. Until recent years you might have spent too much money that you didn’t have. And built up debts in the process. My hope is that Guy is right and we all use the current recession as a learning experience. A lesson that we need to live within our income and save a portion of every paycheck for retirement or unplanned future expenses.

Also that what he calls “life experience goals” are not abandoned. Many people have discovered that you can have a fulfilling life without spending lots of money. It would be a shame to lose that knowledge.

Keep on Stretching those Dollars!
Gary

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Gary Foreman is a former purchasing manager who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on ways to reduce financial stress.

Articles on www.debtplan.org have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice

Baby Savings
The Dollar Stretcher
by Gary Foreman
gary @stretcher.com

Dear Dollar Stretcher,
I’m expecting a baby! It’s my first so everything is new for me. I’m feeling overwhelmed with the whole thing. I can’t ask my mom for advice (long story) so I’m really on my own. There seems to be a million things that I need to buy. I want the best for my baby but if I buy everything they say I’ll need my husband will kill me. What should I do?
Krystal

Congrats Krystal!
It’s not surprising that you’re excited and a bit overwhelmed. First babies will do that. It’s their job. Your job is to grow into the role of parent. That means taking care of you and the baby physically. And preparing for the beginning of a new life in your home.

It’s a shame that your mother can’t help. Mothers have been imparting wisdom to their pregnant daughters for eons. Typically it’s some of the best advice you can get.

In your case you’d be wise to find a substitute. Look for someone from your mother’s generation that you respect. Someone with grown children. Ask them to spend some time with you during the pregnancy sharing their stories and advice. They’ll have a perspective that only years can bring. Some of the things that we do with our babies will have an affect years later. Good and bad. Find someone who can share that wisdom with you.

Look, too, for a friend who has had a baby recently. They’ll be attuned to the latest trends and resources. Things that weren’t available when your mom’s generation was expecting. Many of the tools are a big help. Your friend can help you find the best ones.

One thing that they will tell you is that when you’re expecting it’s very easy to overspend. As you say, you want the best for your baby. You think that your baby deserves the best. But, the truth is that your baby will do very well without the best of everything.

In fact, if you get the best of everything you could actually be hurting your baby. Worrying about how you’ll pay all those credit card bills is stressful. And mom being stressed isn’t healthy for baby either before or after delivery.

There are four things that newborns really need: a good home, good food, clothing and parental love. The first three cost money. The last one is priceless.

Begin with your home. Yes, it’s great if you can afford a completely decorated nursery for your baby. But, it’s more for the adults than the baby. What your baby really needs is a place to sleep, not Disney characters on the walls.

Changing tables, dressers and other baby furniture are nice, but not necessary. Some of those items do make parenting easier. For instance many parents credit the baby swing with saving their sanity. But, if all you can afford is a crib in the corner of mom and dad’s room then that will work fine.

Obviously that precious bundle will need nourishment. Breastfeeding baby can save you $1,000 or more in the first year. You can find plenty of info on breastfeeding with a simple search.

If you use formula look for coupons. You’ll find them everywhere. Consider making your own baby food. It’s surprisingly easy and can save a lot.

Also, if you’re struggling financially, find out about WIC. It’s a government program to support mothers and children.

Next, that little one will need clothes and diapers. Don’t spend a lot on fancy outfits. Chances are that you’ll get a few as gifts and that’s all you need. You won’t have your baby dressed nicely often.

What you will need is lots of every day clothes that can handle spit-ups. Those don’t need to be bought new. Check out craigslist and thrift stores for used clothes and friends for hand-me-downs. Think functional. In the first year babies can be hard on clothes.

Remember, too, that babies grow quickly in their first year. It’s common for moms to have ’6 month’ outfits that were never worn before the baby outgrew them.

As to diapers, you’ll find some moms wouldn’t dream of giving up the convenience of disposables. If you’re one of those you will spend more on diapering. You can reduce the cost somewhat by looking for diapers on craigslist and other used goods sites. Many parents end up with unused diapers that are too small for their baby.

Test out some store brand diapers. They work fine if you can find one that’s a good fit for your little one. Also, become a coupon clipper. Coupons are a great friend to new moms.

Cloth diapers can reduce the cost by half or more. They do take more work, but aren’t nearly as bad as you might think. Also, cloth diapers don’t end up in landfills if that’s a concern for you. Some moms are using cloth at home and disposables when baby is away from home. A bit of the best of both strategies.

Be prepared to resell things when you’re through with them. Online marketplaces make it much easier to buy and sell things. Some moms aren’t storing cribs and clothing for the next baby. They’re selling the items now and buying used when they’re expecting again. Often they can buy something, use it and then sell it for nearly what they paid for it.

For first time moms, what you don’t know can hurt you. At least financially. You’re the perfect target for marketers. Naturally you want to be the best mom you can be. And, without experience, so many things can seem critical to getting your baby off to a fine start. That’s why it’s important to talk with more experienced moms and grandmoms before you pull our your purse.

If you spend too much now you could actually be creating an unhealthy, stressful environment. That could make it difficult for you and dad to provide the love that’s really essential for that precious little person!

Keep on Stretching those Dollars!
Gary

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Gary Foreman is a former purchasing manager who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on ways to reduce baby expenses.

Articles on www.debtplan.org have been acquired from a variety of sources. No content on this site should be considered financial or legal advice

2 Reasons Interest Rates Will Rise & 2 Ways to Avoid Higher Rates
The Dollar Stretcher
by Gary Foreman
gary @stretcher.com

Forecasting the future is always hard. Companies pay big bucks to economists in an effort to get an edge on what might happen in the financial markets. Sometimes they’re right. And, sometimes they’re wrong.

But sometimes a review of relevant facts can shed light on what the future may bring. Or at least make it easier to predict a direction. Given the current situation it would appear that forecasting the future for interest rates would be such a case.

For instance, experts expect the cost of borrowing to increase nearly 40% for the G7 governments. They’ll be borrowing over $8 trillion in the next year.

Now that’s not to say that everyone’s costs to borrow will increase by 40%. Part of that rise is due to the fact that some governments have a lower credit rating than they did a year ago.

Central banks and the Federal Reserve Board are trying to combat the problem by keeping interest rates artificially low to make borrowing affordable for the governments. But that’s not easy. Lower rates means that fewer buyers are interested. Rates have to be high enough to attract enough buyers.

Bottom line is that governments will be borrowing a lot of money in 2012. Competing with you and I for loans. The way they compete is to offer a higher interest rate on the money they borrow.

Another aspect of demand comes from you and I. Will we be borrowing more than we did in 2011? There’s some evidence that we will. Economic forecasts for the next year are all over the lot. But the average runs about 2 to 3% growth for the US economy in 2012. Any growth in the US economy is likely to be accompanied by increased consumer spending. Spending that will probably be paid for by increase borrowing on credit cards.

Again, more competition for loan dollars. Paid for with higher interest rates.

Ok, so let’s agree that higher rates are a distinct possibility. So what can you do to protect yourself?

The first answer is to take a look at your debts. How much do you owe on all your outstanding loans? Make a list. On that list include the current interest rate and whether than rate can be changed by the lender without your permission.

You want to concentrate on the loans where the interest rate can be increased, often called variable rate loans. If you’re unsure whether a loan is fixed or variable contact the lender.

Pay off as much of the variable rate loans as possible as soon as possible. Use any sources of extra money you can find. Cut expenses and/or look for additional sources of income that can be applied to your loan. Pay only the minimums on fixed loans and use an extra on your variable loans.

Then look for opportunities to shift debt from variable to fixed rates. If you have equity in your home now is a good time to consider refinancing. Use the proceeds to pay off your existing mortgage and credit card debts.

Another possibility for shifting from variable to fixed loans would be to borrow from your 401k to repay variables like credit cards.

A caution to those who struggle with debts. Reducing your credit card balances does not give you permission to charge them up again. You need to commit to keeping the balances down.

Naturally, there’s no guarantee that interest rates will rise. Those things are never certain. But, even if you take action and rates don’t go up you’ll be in a better position. You’ll have fewer debts and be paying a low interest rate on them. And, if rates should increase, you’ll be glad that you took action now.

Keep on Stretching those Dollars!
Gary

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Gary Foreman is a former purchasing manager who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on ways to reduce financial stress.

Articles on www.debtplan.org have been acquired from a variety of sources. No content on this site should be considered financial or legal advice

Many people considering bankruptcy opt to use a Chapter 7 bankruptcy filing to help them erase the pressures of mounting debt. However Chapter 7 bankruptcy remains on a credit report for up to a decade and it can be extremely difficult to obtain new credit while a bankruptcy is reflecting on your credit report. There is another option available for individuals and that is Chapter 11 bankruptcy filing. This particular bankruptcy allows you more flexibility to restructure your debts and is easier to work with than a more severe Chapter 7 filing.

In a Chapter 7 bankruptcy, your assets are seized and sold to recover the debts owed to your creditors. This type of bankruptcy is very severe in that it remains on your credit for ten years and your possessions may be taken to make up for the debts you owe. Instead of filing a traditional Chapter 7, you may want to consider debt restructuring under a Chapter 11 bankruptcy filing.

A Chapter 11 bankruptcy can be used for individual debt reorganization. These types of bankruptcies were formally reserved for large corporations who wanted to remain intact while still repaying their creditors with a managed payment plan. However with recent changes to the bankruptcy code, a Chapter 11 bankruptcy can now be modified and applied to individuals seeking debt relief. Chapter 11 bankruptcy can be an excellent alternative to Chapter 7 or 13. It is an appropriate choice for consumers who have too much debt for Chapter 13 but who wish to avoid the severity of a Chapter 7 bankruptcy.

Another option for bankruptcy filing used by individuals is the Chapter 13 filing. This option is similar to Chapter 11 in that it is a reorganization plan that helps the debtor establish a payment plan without having their personal assets seized. At the end of the payment plan period, certain debts are completely discharged and the debtor’s credit record is cleared of these debts permanently.

Chapter 11 is also used in place of Chapter 7 or 13 when the debtor wishes to use a repayment plan and have their debt discharged without the need of a financial management course. A financial management course is a requisite in a traditional Chapter 13 reorganization plans. However all bankruptcies mandate credit counseling before any debts can be discharged. The amendments to Chapter 11 include the new sections which are sections 1115, 1123(a)(8) and 1129(a. These new sections state that a Chapter 11 debtor must commit to turning over a part of future wages to their creditors and all payment plans must be completed before a discharge can be carried out. This plan works well for consumers with an exorbitant amount of debt that needs to be restructured.

Understanding the basics of a Chapter 11 bankruptcy can help you determine whether this option is the best bankruptcy option for you. Chapter 11 filings are best suited for consumers with too much debt to file a Chapter 13 but who do not wish to choose a Chapter 7 due to its sever terms. Although the decision to file bankruptcy is never an easy one, availing yourself of options is the best way to make accurate choices that will lead to an improved financial condition.

Articles on www.debtplan.org have been acquired from a variety of sources. No content on this site should be considered financial or legal advice

Matching Tactics to Your Financial Goals
The Dollar Stretcher
by Gary Foreman
gary @stretcher.com

Last Saturday I went to the drag strip with some friends of mine. It’s an annual event for us. We’re a bunch of car enthusiasts who get to spend a day with some truly amazing equipment. For those of you who are not familiar with drag races here’s a brief explanation. Each race is a 2 car competition to see who can cover an 1/8 or 1/4 mile in the fastest time. They both start from a standstill.
An electronic signal tells them when they can go.

And then they explode off the starting line to cover the agreed distance (which is set at different legnths for different classes of cars). Huge tires spin trying to get traction. Smoke fills the air. The sound of the engines is earsplitting. An extraordinary amount of power is unleashed in just a moment. You can’t help but be impressed as these cars go from a standing start to over 200 miles per hour and cover 1/4 mile in just seconds!

There were some exceptions. Not every car was designed just to go as fast it could. Some were built with a sense of humor. For instance someone had a car that looked like a small railway engine. As you can imagine it attracted a lot of attention from the kids! I’m sure it goes fast, but that’s not it’s sole purpose. It was also meant to create a few smiles!

I had a great time. Always do. But, unlike my friend, who has been a drag racer since his teens, I tend more toward classic and custom cars. Which are an entirely different breed of car. They’re often restored to like new condition. Or, in the case of customs, modified into a work of art in sheetmetal. They’re driven with extreme care to minimize any chance of accidents or paint chips.

One frustrating thing about a day at the drag strip is the occasional car that has an equipment failure on the track. We saw one where the differential blew up and spewed grease for 1/16 mile. It took the clean-up crew the best part of an hour to make the track safe to use again. During those cleanup times you get to swap stories with your friends and other spectators (some of the stories are even true!) or go down to the concession stand to pay for an overpriced hotdog and drink.

Sometimes in those quieter moments I tend to think of how life illustrates our finances. This happened to be one of those cases.
It occurred to me that just as dragsters and classic cars are different and well-suited to their purpose, so should our financial tools and methods be chosen for the goal we want to achive. Let me try to draw an analogy that makes sense.

You’d be foolish to take a classic car that took years and many dollars to restore and run it on the drag strip. One trip could ruin paint you spent hours polishing or break parts that you can’t replace. That classic car’s purpose isn’t to go fast. If your goal was to go fast you’d be much better off to use a dragster. It is designed to accomplish your purpose.

The same thing is true of our finances. We need to know what our goal is before we decide which method to use. Take, for instance, our desire to get out of debt. We’d like to use a dragster to solve the problem. A quick burst of effort and the whole deal is over quickly. But, conquering debt doesn’t work that way. Chances are we built up the debt over years and years. We’re not going to get rid of it overnight. It’s going to take a longer, more dedicated effort to keep on repaying past debts for months and even years. More like our classic cruiser than the dragster.

We’ll need tools that can help us select which debt to pay first. Ways to keep track of what progress we’re making month by month. Even some rewards as we hit the quarter and half-way point to keep us motivated to continue pushing to our goal of being debt-free.

Just like the cars, we need to be tuned differently too. We all know someone who starts a financial program with a lot of tire smoke. And they travel the first quarter mile quickly. But then they lose interest and don’t make any real progress towards their goal.

It’s not how much enthusiasm we bring to the starting line that counts. Rather it’s the determination to continue to journey even when it’s tough to go on. When events make it hard to stay the course.

On the other hand our goal may be to get the best deal possible on a new refrigerator. This time we need to select tools and techniques that will help us right now. Knowing where to find reviews, looking for discounts and brushing up on how to negotiate are all immediate activities. This time the amount of energy we bring to the task today is really important. Much like the dragster taking off. A cruiser will not get the job done. We need our tools to work together right now.

So as we set financial goals, both now and as part of New Year’s resolutions, don’t forget to make sure that you’re driving the right financial tool or technique. Failure to get this right could leave you standing along the money highway waiting for a tow truck!

Keep on Stretching those Dollars!
Gary

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Gary Foreman is a former purchasing manager who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on goal setting. Source: Matching Financial Tactics to Your Goals

Articles on www.debtplan.org have been acquired from a variety of sources. No content on this site should be considered financial or legal advice